Stock Market and You - Lesson - 2

In our country, investing in Post Office deposits  carry the least amount of risk.  The next choice is bank deposits.  However, the interest you’ll be earning here is less than the rate of inflation.  There are other avenues for investment – such as RBI bonds,  Public Provident  Fund (PPF), National Savings Certificate, Company deposits, real estate, Mutual Funds and Shares of Companies.  All these investments carry a considerable amount of risk.  Market analysts broadly classify this risk as low, medium  and high risk.

Company deposits always carry a rating.  Before investing, check and re-check  and read what investment advisors say about them.  If a blue chip company accepts deposits, your investment may be a low risk deposit.  But you may not get back the amount before the deposit matures.  On the other hand, a bank deposit may be immediately encashed even if it not due for payment.  This means, it is always advisable to invest only your surplus funds in Company deposits.  Do not invest just because a Company offers a high rate of interest because, a high rate of return is associated with a high risk.

Another avenue is investing in a second house or residential plot:  This is better than constructing a house on the first floor.  No doubt, a two-storey building fetches a high valuation.  But, can you sell only the first floor house?   Just to satisfy yourself, you may keep telling everybody that the present value of your house  is “this much”.   That  is  only on paper.   As long as you do NOT sell it, it’s money value is zero!                      On the other hand, if you have a separate plot, you can sell it for a profit and enjoy your first house also!  You can then re-invest that amount elsewhere.  However, in our country, people prefer the first way – that is building a house on the first floor – mainly because of the value it fetches on the social status front.  They would rather lose  privacy from  tenants, quarrel with them  for drinking water  or  “too much’ noise  from   tenants’ children.  They would rather lose peace of mind and prefer to be identified as the owner of ‘that big house’.  Ultimately, they deny themselves real enjoyment.

There are others – plenty of them – who invest in physical gold and spend sleepless nights.  In the process,  they lose their health in exchange for possession of  gold.  History tells us that entire  kingdoms  have  vanished  for the sake of gold.   If at all you want to invest in gold,  there is a better way:  gold ETFs.  Investing in a gold Exchange Traded Fund (ETF) is as good as investing in physical gold minus worries.  When you redeem these units, you’ll get back the market value prevailing at the time of redeeming.

For a good tip on Mutual Funds, move on to Lesson 3.