Investing is a complex exercise only because we insist on making it so. But the basic principles are simple. As simple that anyone can become a good investor just by following simple and easily understood rules, which also help avoid big mistakes. Here are my rules for investment success.
Develop a Plan: For your short-term goals, make sure you're taking appropriate risks. Invest money that you'll need in the next two years to five years in cash and short-term bonds. If you've taken on too much risk for short-term objectives, pull back now. There's no telling where the bottom of this market is. It's better to cut your losses and preserve the money you already have for short-term goals. For your long-term financial goals, consider equities.
Keep It Simple: Buy a diversified equity fund or an index fund for equity exposure and a floating-rate bond fund for fixed income exposure. These are the basics of the investment world. Sure, you can buy many other types of funds (Petro, MNC, Gilt, Fixed Maturity, Serial Plans etc), but it's hard to go wrong with these two. To keep fund selection simple, stick with a diversified equity funds of well-established fund families. Equities prove to be the best performing long-term asset class. Stay away from exotic speciality and sector funds, unless you have a huge risk appetite and you can take in your stride a 25% loss in a quarter.
Ignore the hot stocks and funds: If you buy this year's top-performing fund or stock, be prepared to see it at the bottom next year. The fancy academic expression for this phenomenon is -- Reversion to the Mean. But the old saying explains it just as well -- what goes up must come down.
Invest Regularly: Investing a little bit of money each month is the surest way to reduce the risk of investing, because you lessen the possibility of buying at the market top. Also, no one is smart enough to anticipate all the moves, both up and down.
Buy and Hold: Short-term trading makes more brokers than investors rich. The income tax department likes the practice, too. If you meet anyone who claims to have made money through short-term trading, resist your temptation to listen any further and move on to a more productive conversation.
Start Early: It is not the "market timing" but time in the market that matters. Power of compounding will turn things in your favour.
Investing is a long-term proposition. Research your investments, remember your goals, re-examine your risk, and limit how much you listen to day-to-day market commentary. And don't let your emotions overpower your sense of reason
What are the factors affect the changes in rate of Fixed Deposits? Fixed Deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment at a decent interest rate. There are various factors that affect the rates of interest for a Fixed Deposit. Policies of the Reserve Bank of India - The several norms and restrictions posed by the Reserve Bank of India , in order to gain optimum control over credit and inflow and outflow of fund throughout the country. The repo rate changes, cash reserve ration tends to change and these changes affect the banking products like Fixed Deposits, loans etc. Recession - When unemployment in a country crosses the benchmark set Recession hits, and slowly the country faces an economic slow movement, affecting the purchasing power of the people in the country, forcing the Reserve Bank of India to release more funds in the financial marke...
