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Category: Investment

  • What Is Investment – and How To Start Investing

    What Is Investment – and How To Start Investing

    Invest in your future. Invest in your career. Invest in your dreams. Investing is a very used verb to talk about goals and plans – but when it comes to money, do you know what investment is?

    Investment is, in short, taking an amount today and trying to turn it into more money in the future.

    Like? It’s not magic, but understanding how the financial market works and choosing a category or type of investment that fits your profile.

    There is a myth that to start investing you need to already have a lot of money – but that couldn’t be further from the truth: anyone can invest, no matter how much money they have.

    What It Takes To Start Investing

    • The first step is to set your expectations: most of the time, investments pay off in the medium and long term. Don’t expect to make a lot of money overnight;
    • The second step is to know that investing needs to be a habit: always set aside an amount per month, however small;
    • The third step is to look for a financial institution (bank or broker) and evaluate the options they offer.

    What is investment: know the different types

    Making an investment means setting aside an amount of money and putting it somewhere where that amount pays off over time.

    It is possible to invest in real estate, for example, invest in buy-to-let properties and selling it for a higher price – but this is far from being the only (or the best) option for those who want to start investing.

    Those who have little money and no experience in the market can – and should – have some kind of investment. In that case, there are several financial products that are easier to manage and understand.

    If your goal is to keep the money yielding, without having the trouble of managing it often, there is certainly a type of financial product that fits your profile.

    What are financial products – and how do they make your money pay off

    Financial products are different options that common people have to profit from everyday operations carried out in the financial market.

    When you invest your money in a financial product or asset, you are, most of the time, lending that amount to banks and financial institutions to carry out different types of operations.

    That money you “borrowed” is returned with interest – which is nothing more than how much your investment yielded.

    In other words: you choose a product, put your money in it and, depending on the type of application, you know exactly when you will earn more over time (in the case of Fixed Income products. See more about this option below ).

    But beware: every investment is a gamble. The more risk you are willing to take, the greater the payoff if it works out.

    Understand the risk of investments: Fixed Income and Variable Income

    Each type of application has its own risks, yields and terms.

    Deciding which products fit your profile depends on your knowledge of the market, your goals, your current financial position, and how much risk you are willing to take.

    Basically, the financial products you can invest in fall into two types — and the risks vary between them:

    Fixed Income

    In Fixed Income , investors have more clarity on how much their money will yield.

    Fixed income investments can be of two types:

    Prefixed – when there is a certainty about what your return will be at the end of the application, e.g., 6% per year.

    Fixed rates – when the income is linked to some other index of the economy. In this case, the investor knows that his money will yield according to something specific – but he doesn’t know exactly how much because this indicator has its fluctuations.

    Variable income

    As the name implies, variable income investments have rates of return that vary over time. In other words: profitability varies all the time, which means that the risks are greater. Here, the return is greater, but the possibility of losing is also great. The stock exchange is the market’s main variable income asset.

    How to choose: fixed income or variable income?

    At first glance, Equity Income may seem more advantageous than Fixed Income as it provides better chances of earnings. However, you need to be careful with this idea.

    In the financial market, the return of an asset is proportional to its risk . That is, the greater the return possible, the greater the risk.

    The stories of investors who became millionaires by investing in stocks are famous. But that didn’t come without a risk: in the same way, there are investors who lost everything overnight by betting on the stock market.

    The stock exchange is an example of an extremely volatile market. Investing in stocks involves cold blood and knowledge to deal with swings.

    On the other hand, Fixed Income offers constant and stable income, which gives the investor more peace of mind, especially when thinking about the long term

    Therefore, if you are going to start investing now, the recommendation is to give preference to investments in Fixed Income.

    With them, you can create an emergency reserve and don’t run so many risks – besides being able to withdraw the amount when you need it.

    When this reserve already exists, you can start thinking about investing in other less safe products with more interesting returns.

    Summary:

    We summarize the important points:

    • Investment is a way to make your money pay off over time;
    • There are several forms of investment, but it is important to understand that each one has different risks and returns;
    • Banks or financial institutions offer different investment products to their clients;
    • Within the category of financial investments, there are two main types: fixed income and variable income;
    • Fixed income ones have a certain income, while with the variable income option, the client does not know how much he will have at the time of redeeming the investment;
    • As a general rule, the greater the risk, the higher the return. For those just starting out, it is recommended to invest in lower risk options with a more guaranteed return (even if a little lower) – such as fixed income products.

    Author Bio: Jonathan is Founder of SPV Mortgages. He can help you find and secure the best limited company mortgage options to push your property investment dreams forward. As specialist mortgage brokers with over 10 years of industry knowledge, he has helped experienced landlords and first-time investors across the country; saving you time and money in tracking down the best rates.

     

     

  • Smart Choices for the Systematic Investment Planning

    Smart Choices for the Systematic Investment Planning

    Before getting started with your Systematic investment plan, it is advisable to research how big the expected profitability is, how high the expected expenses are and how much financing you think you need to get started. This information forms the financial plan.It’s an indispensable part of any business or investment plan. In this article you can read which parts the financial plan consists of and we give you some tips for drawing up the corresponding budgets.

    Create a financial plan: the numerical representation of your investment plan

    A financial plan is a numerical representation of your business idea and the future company. In addition, it is crucial if you plan to apply for funding. With a financing plan you convince the bank or other investors to invest money in your company. A well-founded financial plan is therefore an important tool for starting entrepreneurs to gain insight into the success rate of a new business idea and the financial feasibility of the future company. You can draw up this plan yourself, but you can of course also have your business plan drawn up by a financial expert.

    The financial planning of the business plan consists of 5 parts

    The financial plan, as part of the investment plan, covers 5 financial budgets. The 5 components of the financial plan at a glance:

    • Investment budget,
    • Financing budget,
    • Operating budget,
    • Liquidity budget,
    • Private budget.

    To help you on your way, those below will explain exactly what these parts of the financing plan entail.

    The investment budget: essential part of the financing plan

    The investment budget provides insight into the amount of start-up capital you need to start your business. These are divided into fixed assets and current assets. By fixed assets we mean all investments in capital goods that last longer than a year, such as company premises, a company car, a computer and machines. Current assets include all business assets with a term of less than one year, such as stocks, debtors and liquid assets. For Systematic investment plan this is important.

    After drawing up the investment plan, you have a clear overview of the total amount of money that is required to make a good start with your new company.

    Tips for drawing up your investment plan

    • Ensure that your investment plan is properly substantiated by adding quotes to your business plan.
    • Make an informed choice for each investment by requesting multiple quotes from different companies and suppliers.
    • Include an expense in your investment budget for unforeseen expenses.
    • Consult a business plan example to gain insight into the various components and the structure of the budget.

    The financial budget of your financial plan

    The second part of the financial plan is the financing budget. Together with the investment budget, the financing budget forms the starting balance of the company. In the financing budget, you clearly explain how you will finance the required business assets. This can be done with equity or by applying for external financing.

    In this part of the financial plan you also calculate the solvency of your company, in other words the ratio of your equity capital to total capital. Investors assess the financing application and the business plan partly on the basis of the solvency ratio.

    Tips for preparing your financing plan:

    • Make it clear from your business plan how you can continue to pay your debts to third parties in the long term.
    • Banks usually require an equity contribution. Make sure that your financial planning is aligned with this, by bringing in equity of at least 20% of the total capital.
    • Venture capital or subordinated loans are classified as equity.
    • View financial plan example for an overview of the main elements included in the financial budget.

    Operating budget: make an operating forecast for the next 3 years

    With this you calculate whether your company will make a profit or loss during the first 3 years. You can see it as a translation of your ambitions and objectives into financial figures. The operating forecast as part of the business plan is also considered as a budget of the profit and loss account. By drawing up an operating budget, you can see at a glance how much turnover your company needs to realize to break even, or how much turnover is needed to be profitable.

    When drawing up a financial plan at the operating budget level, the first step is to determine the expected revenue. You then subtract your purchasing costs from this to calculate the gross profit. Finally, the business costs are reduced by the taxes still to be paid.

    Tips for drawing up your operating budget:

    • In the operating plan, all amounts must be shown excluding VAT.
    • This measure influences the assessment of a financing application and the associated business plan.
    • For employers, actual wage costs are on average 30% higher than gross wages.
    • Depreciation on your business assets also falls under business costs.
    • In preparation for drawing up the operating budget, it is wise to analyze a number of examples.

    The liquidity budget: the basis of your investment plan

    With the liquidity budget you provide insight into the expected income and expenditure per month. Based on this, you can, among other things, coordinate your investment plans. In addition, you can also estimate the months in which you need extra cash or can build up financial reserves faster.

    The liquidity budget starts with calculating your opening balance on January 1 of the relevant year. Then make an estimate of the expected income and expenditure per month. In the third step, you determine whether there is a surplus or a deficit in specific months. Finally, you adjust the financial budget to this by eliminating any shortfalls.

  • How to raise your monthly savings by using Fixed Deposit?

    How to raise your monthly savings by using Fixed Deposit?

    It is really essential for every earning individual to keep a portion of their monthly income, be it a retirement portfolio or future financial obligations. In order to address such situations conveniently, everyone has to save some money for themselves. It will help not only in building substantial amounts over time, however it also inculcates the habit of disciplined savings as an individual.

    A systematic investment plan is offered in the Indian financial market with several options to facilitate the same. But, since this is related to the market-dependent instrument, the risk associated with it is much higher. And losing out on accumulated amounts will be also higher. Thus, to maximize the profit gained in a safer environment, it is always best to raise your monthly savings by investing in a Fixed Deposit.

    Why Fixed Deposit?

    Fixed deposits are one of the most popular saving tools for individuals of all walks of life. Especially, amid the high market value and the present economic downturn, investing in fixed deposits help you to protect your hard earned money and multiply it more.

    These deposits enable you to plan your investments according to the goals, so that you can multiply your savings with high safety and flexible tenure plans. The choice is given to you to fix the deposit tenure and also the frequency of the interest you will receive in return which will be paid out to you at the end of the tenure. In addition, you can use the fixed deposit calculator to find out the returns you will get in that current plan in which you’re opting for.  It will thus help you to calculate the maturity amount in the fixed deposit, before starting to invest your money in it.

    Therefore, the fixed deposit is suitable for all investors, regardless of any risks to their money. But, since the deposit needs a lump sum of amount, investors who are willing to open the account have to accumulate the money by saving it regularly until it reaches a solid figure. Financial institutions have their own eligibility criteria for investors based on the money they want to invest in. And it may not be suitable for individuals who have started their job roles as they may not have the essential amount of money to open a fixed deposit account and to meet a sizable monetary obligation, it will take longer time compared to other individuals who are continuously for years. 

    Hence, systematic plans are designed by the financial institutions like ShriramCity Finance to meet the fixed deposit requirements for those kinds of customers. It is designed as a quick savings tool in which an individual can pay the monthly deposits into an account of the fixed deposits. These deposits are considered, calculated individually and earned at the rate of interest prevailing on that date. At the same time, each deposit will mature individually like the other kind of deposits.

    Investors who are willing to accumulate their savings through the systematic plans can make use of the calculators available in the company’s website as well. Individuals can use this tool to assess the interest rates before depositing their money and it will also aid them to deposit with a perfect strategy as per their financial situation.

    How to systemize your Fixed Deposit plans

    Let us discuss some points that can differentiate the systematic plans form the other fixed deposit schemes or saving tools offered monthly in the Indian Financial market:

    Low Deposit Amount

    Any individual is eligible to start their own Systematic Deposit plans starting from a minimum amount of Rs.5000, it is the common amount fix by the financiers. Nevertheless, it also reduces the burden of saving a lump sum amount of money and it thus gives the pleasure of creating the wealth over time required to invest in a fixed deposit.

    Ranging from 6 to 48 months for a tenor and from 12 months – 60 months,  the monthly deposits for an individual has a large number of varieties in which they can avail the benefit of flexibility in the systematic plans. They can also choose the number of deposits depending on their short or long-term financial obligations.

    Assured Earnings

    The interest for each deposit earned is based on the prevalent rate on the respective date. However, unlike in a systematic investment plan, interest rates of each deposit accrues will remain constant throughout the maturity period. The rate of interest in return fluctuates with regards to the market conditions and therefore, it will not pose any uncertainty of earning for the respective investor.

    Ease of Depositing

    Systematic Deposit Plan can be made through an account payee cheque, on the first payments. And from there, the subsequent payments will be automatically debited by the concerned financial institution from the account of the depositor.  Thus, investors will not need to assume the struggle of payments on a periodic basis. At the same time, the investors can enjoy the convenience created by the systematized wealth accumulation and thus lead a stress-free life.

    Depositors who are also the account holders have the liberty to choose and withdraw their accumulated amount at the premature time as well. And those withdrawals are subjected to the regulations of the Reserve Bank of India (RBI).

    Simple Documentation

    An investor only needs to submit his/her KYC documents in order to open an FD account through Systematic Deposit Plan. The documents should be submitted alongside the cheque for the first payment with a NACH mandate.

    Loan Against Fixed Deposit

    Depositors can also opt for a loan against their saved fixed deposit money if they are in need of any immediate financial obligation, as an alternative to premature withdrawal. This benefit allows the individuals to make sure that their Fixed deposit account will continue to remain by earning the interest amounts. Therefore, the Systematic Deposit Plan stands as a challenging option for investors, who want to save a lump sum amount for their future without straining too much by observing their current financial status. 

    While comparing a systematic investment plan with the other plans, it is clearly evident that there is a guaranteed assured return even if there is a market crash.

  • Five Tips for Financing Investment Property

    Five Tips for Financing Investment Property

    Real estate investments have the potential to provide a steady income for investors—presuming they can get their hands on the financing required to get in the game. There are many financing options available, and the primary differences boil down to how much the loan is going to cost the investor. The higher the cost of the loan, the lower the long-term income potential of the investment. If you want to maximize the profitability of your venture, getting the best mortgage is critical. Here’s what you need to know to get the best loan possible.

    1. Tidy Up Your Credit

    A credit score in the mid 600s may be enough to qualify for a basic investment loan, but the terms will not be on the investor’s side. With low credit scores come high down payments and high interest rates, neither of which will help your profitability. The higher your credit score, the better the terms of the loan—and a score over 740 will typically qualify borrowers for the best terms available from most lenders.

    2. Organize Your Financial Documentation

    Most lenders want to see that you have either the income or the available cash to cover your existing obligations and the new loan you’re trying to secure. You’ll be allowed to count a certain portion of the investment property’s income in your application, but having the right documentation to show the rest of your income and cash reserves will speed up the process. Gather your tax returns from the last two years, including W-2s, 1099s, and other income statements, along with bank statements, recent pay stubs, and anything else relating to your current income—especially if you have new sources of income that are not on previous tax returns.

    3. Reduce Current Debts

    Most lenders consider your debt-to-income ratio to make sure you’re not using all your current income to pay obligations and have nothing to spend on food and the electric bill. If you’re unable to boost your income levels, paying down debts is the way to go. For borrowers who already meet the minimum requirements for a lender, reducing that ratio can help you get better terms for your loan.

    4. Document the Property’s Cash Flow

    Most lenders are primarily concerned with your ability to repay a loan. Some lean heavily on your personal ability to pay, as demonstrated by your past (i.e., your credit score) and your current income levels. Others, called asset-based lenders, will be satisfied with a property that can demonstrate a high debt service coverage ratio, or the ratio of the projected income of the property to the total amount of the mortgage payments, taxes, and insurance. In essence, the more income that remains once the debts have been paid, the higher the score; the higher the score, the better the terms of the loan.

    5. Cast a Wide Net

    From an outside perspective, it may seem like most lenders are the same and that loans do not vary considerably from one lender to the next. The truth is that there can be significant differences from lender to lender. First, the fees associated with the mortgage will vary, and even a fraction of a percent difference in interest rates will have a major impact on the long-term cost of your loan. Borrowers should take the time to apply to several lenders and include conventional lenders as well as asset-based lenders so they can compare and contrast their options.

    Protecting Your Investment

    Once you’ve done the hard work of finding the best loan for your investment property, the next step is to maximize the profits from that investment. Many first-time investors are overwhelmed with the day-to-day operation of rental properties, especially if there are multiple units and many tenants to juggle. It can be easy to make costly mistakes in the initial months, especially if your property has vacancies, and you don’t have the marketing skills to attract tenants or the screening skills to choose the right one. New investors may find that working with an experienced property management company will help ensure the venture gets off to the best possible start to provide long-term income and security.

  • A Complete Guide on REIT

    A Complete Guide on REIT

    Every individual looks for expanding his/her investment portfolio. With a variety of investment options available in the market, it often becomes difficult to choose which investment one should opt for.

    There are a lot of financial characteristics to consider before building your investment portfolio. These things include tax rates, liquidity, gains, etc.

    Real estate investing can be a major impetus to your financial portfolio. It can quite literally accelerate your journey to riches if done correctly.

    Most of the time, real estate investing is often associated with owning properties and leasing them out. However, there is more to real estate investing than just this. Real Estate Investment Trusts (REIT) are an important component of real estate investing.

    What is a REIT?

    The full form of REIT is Real Estate Investment Trust.

    It is just like a mutual fund. So this brings us to our question, what is a mutual fund?

    Mutual funds essentially make use of pooled money from a variety of investors to buy financial assets like stocks, bonds, etc. Then, the gains from these financial assets are divided proportionately among the mutual fund investors.

    Similarly, REIT pools money from a variety of investors to buy real estate and then generate income. It allows individual investors to earn a portion of that income-producing real estate.

    These real estate portfolios are made with multiple property types. REIT indulges in buying properties and leasing the real estate to other companies/individuals. The income which is generated as a result of leasing out or selling is then distributed proportionately among shareholders.

    Also, REIT is specific to one particular locality of the town/city. Therefore, you must choose the specific location you prefer to invest in.

    Also, REIT is of different types, categorized into many sections including medical REIT, office REIT, residential REIT, retail REIT, etc.

    Healthcare REIT includes nursing homes, medical offices, hospitals, and clinics. Office REIT includes business offices, business districts, etc. Hence, there are a lot of varieties of which REIT available in the market.

    Advantages of REIT

    Everything in life has advantages and disadvantages just like it is said there are two sides to everything: a bright and a dark side.

    Any and every financial decision requires careful analysis before investing. Gauging the pros and cons before going for REIT is very fundamental.

    These are some of the advantages of REITs:

    Diversification

    Diversification is the key mantra underlying investing.

    One of the first things to keep in mind while building an investment portfolio is to diversify it. The old saying, “Don’t put all your eggs in one basket” holds true here.

    Putting all your money into a single investment is never a good idea.

    Rather than investing in one stock or one mutual fund, investing in various assets is a better way to guard against market fluctuations. REITs are very similar to mutual funds in their approach and thus are a good option to add to your investment portfolio.

    Time

    REITs can prove to be very good investment options when invested in for a long period of time. Also, REITs come with a lot of time flexibility.

    Investing for long-term should be your priority if you wish to earn some major gains.

    Liquidity

    While it is easy to believe that selling houses is difficult, it is not entirely true.

    When you invest in a REIT, selling houses and getting back your money is way easier. It is a relatively liquid way of investing in real estate.

    Simple Tax Calculation

    The gains on REIT are charged for taxes just like other incomes. There is no complexity in the calculation of taxes and the whole procedure is really simple.

    Disadvantages of REIT

    While there are a lot of convincing arguments in favor of REIT, there are certain downsides to it as well. Before investing, one should think about the downside as well. Here are some disadvantages or drawbacks:

    Property Taxes

    While property taxes would not affect you directly as an investor in REIT, they would however have an indirect bearing on your gains.

    How?

    Because property taxes can decrease the earnings you get from the REIT.

    Also, property taxes vary from place to place. So you must keep a check on the property rates in the locality you are willing to invest.

    Interest Rates

    Whenever interest rates go up, REIT prices dip. While some people may consider this as an opportunity to sell and earn good money, it is important to keep in mind your long-term investment goals.

    The decision to sell or hold your REIT should be based on your financial goals rather than the market situation.

    Tax

    The gain from REITs is often considered as an ordinary income instead of as a capital gain. Hence, the gains from your REIT are charged at a higher tax rate than capital gains.

    How to proceed with REIT?

    Now that you’ve gauged the advantages and disadvantages of REITs, you can choose whether it’s a good option for you to invest in.

    But how would you approach REIT?

    Research

    Similar to any financial investment, you must do an ample amount of research. Read about which companies are better, which REITs give better returns, and which localities are better to invest in.

    REITs or Mutual Funds that invest in REITs

    You can either invest directly in REITs or choose to invest in mutual funds which then invest in REITs further. The second approach is better for those looking for little effort and greater gains.

    Conclusion

    On the off chance, you are looking to increase your income level and up your investment game, Real Estate Investment Trust is made for you.

    Turbocharge your investments with this simple technique. If you have big-time aspirations for your financial situation, it is time to diversify your portfolio with real estate.

    If you are willing to invest in real estate but wish to avoid its high risk, lack of liquidity, etc., then you must opt for REIT after carefully analyzing its pros and cons.

    I hope this helped!


    By HomeLight Homes