Warren Buffett says investing is simple but not easy. We want to make it easier for you.
Who doesn’t want to be rich and famous?
While fame may be a fleeting affair for most of us, all of us have a very good shot at becoming rich by way of careful financial planning. A good way to do this is by investing your money so that it grows at a good pace as you move ahead in your life.
Investment guru Warren Buffett has rightly said that investing is simple but not easy.
We want to make investing easy for you.
There are some basic things you need to know before you dive into the world of investing. Read away.
1. BSE and NSE
Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) are the places where an investor can buy, share and trade stocks. If a company wants to issue shares, it has to list with a stock exchange. Investors do not interact directly with the stock exchanges, but when they trade through a broker or a website, the actual transaction takes place on the stock exchange.
Sensex and Nifty are indexes of BSE and NSE respectively. Depending on how stocks are performing, Sensex and Nifty move up or down. This gives the investors an idea about the movement of the market.
2. Asset:
An asset is anything that has a monetary value. Liquidity is the ease with which an asset can be converted into money.
Assets are of two types: Liquid or non-liquid
A liquid asset can be easily converted into money. Stocks, mutual funds, gold, fixed deposits etc can be called liquid assets as they can be sold quickly to get money.
Investment in a non-liquid asset cannot be quickly turned into money but it has its own benefits. Provident fund, life insurance returns are some examples of non-liquid assets.
Assets are also classified as Debt, Equity, Real Estate and Commodities.
A debt asset earns you interest, for example, Fixed Deposit, National Saving Certificate, Public Provident Fund etc
Equity assets refer to shares.
Real estate asset, as the name suggests, includes investment in property and land.
3. Capital Gain or loss
In simple terms, Capital Gains and Capital Loss refer to profit and loss respectively.
Capital gain is the profit you make when you sell assets like mutual funds, shares, bonds, property and gold.
If you sell at a price higher than your purchase then you make a capital gain and in case you are forced to sell at a price lower than your purchase, you incur a capital loss.
While making these calculations, you should also consider expenses like fees, documentation costs, commissions etc
4. Capital gains tax
It is the tax that you pay on capital gains that you make.
It is of two types, long term and short-term capital gains tax. You pay either of them depending on how long you hold on to a particular asset.
The holding period is different for different assets. Though the name might sound fancy, holding period is just the time period during which you own a particular asset.
In case of shares for example, you will have to pay short term capital gains tax if you sell them within a year. Anything more than a year and you will have to pay long-term capital gains tax.
For gold, however, this holding period is of 3 years. If you sell gold within 3 years, you will pay short-term capital gains tax. Otherwise you will have to pay long-term capital gains tax.
All this sounds too technical, we know. And that's why we are signing off here but it's just for today. Read the info again if you want to and watch this space for part two of this article series.
Let's make you richer!
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