There are few of us who has ever adopted a systematic and planned approach to investing. The approach has always been largely and hoc in nature. For example, many of us out an alarm to wake us up in the March every year so that we can mainly save taxes and consequently make good investments. You have plenty of choices when it comes to your money. You can buy something fun like boat or flat screen television, you could even take that dream vacation around the world or you could redesign your house you have been dreaming of. Alternatively, if you wanted to be little more practical, you could put your money to work for you and invest it in the Indian share market.
Investing in share market offers plenty of advantages to individual traders. Here are some of the following stock market investing benefits:
Time value of money is a value of money with given amount of inflation accrued or interest earned over given amount of time. The ultimate principle suggests that certain amount of money today has different purchasing power unlike the same amount of money in the future. There are plenty of basic equations, which symbolize the equalities listed above. The solutions might be found using formulas, spreadsheet and financial calculator. Formulas are programmed into several spreadsheet functions including PMT, PV, NPER, RATE and FV and most financial calculators.
Interest which accrues on the initial principal and accumulated interest of principal deposit, debt or loan is known as compound interest. Compounding of interest enables a principal amount to grow at faster rate as compared to simple interest that’s calculated as percentage of the principal amount only. In order to define an interest completely and allow one to compare it with other interest rates, the compounding frequency and interest rate must be disclosed. As many people prefer to think of rates as yearly profit, many governments need financial institutions for disclosing the equivalent yearly compounded interest on advances and deposits.
In finance, diversification means reducing risk by investing in variety of assets. If asset values don’t move up and down in perfect synchrony, a diversified portfolio will have less risk unlike weighted average risk of its constituent assets. Thus, any risk-averse trader will be diversifying to at least some extent. Diversification is one of 2 general techniques to reduce investment risk and depends on the lack of tight positive relationship amongst assets’ returns and works even when correlations are somewhat positive or near zero. Hedging depends on shorting assets with positive correlation and negative correlation amongst assets.
Tax deferral refers to examples where taxpayer can delay paying taxes to some future period. Theoretically, net taxes paid should be the same. Enterprises or corporations might often be enabled to defer taxes, for instance by using accelerated depreciation. Profit taxes are reduced in current period by either increasing expenses or lowering declared revenue. Tax deferred retirement accounts exist in most jurisdictions and enable individuals to declare income later in life.
Pros:
Tax-free investment options
Potential for high investment returns
Flexible investment options
Government monitored ‘safer’ shareholder options
Long term investment possible
Disadvantages:
Might be minimum deposit requirements
Money must often be left untouched long term
No guarantee of returns
Risk of losing your money
Might be high charges that reduce earnings from investment returns