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What are Investments?

Most people have two choices in life: spend what they earn, earn more money, spend some more and eventually borrow money to pay for unexpected expenses; Or they can use funds they have saved or strategically borrowed to make investments that would in turn increase their earning, and allow them to spend more freely in the long run.

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Investment can be understood as follows:

  • ‘Putting your spare money into an income generating asset or an asset which would appreciate in value with time is an investment.’
    And
  • An activity or act where ‘money makes money that in turn makes more money’. 

Another reason for savings to be INVESTED is that the value of money continues to increase over time.

Once you can see your savings grow, you will be motivated to move to the next level and realize that wealth is when small efforts produce big results & poverty is when big efforts produce small results.

The object of investing is to place your money into assets that will provide you with an ongoing and increasing income.

Example

If you have Rs. 20,000 and you invest in an interest bearing investment, only then you receive interest on Rs 20,000.At five percent interest your investment would grow by Rs 1,000 a year.

On the other hand let’s assume you invest Rs 20,000 and borrow Rs 80,000 to buy a properly worth Rs 100,000.

You would get growth on Rs 100,000. At 10% per annum your investment would grow by Rs 10,000 a year.