Investment is one of the ways to create wealth and build a net worth for any individual. It may not be created by savings out of the salary or other types of regular income. For this, you have to invest money in the right place at the right time for the right period of time. There are several instruments of investment which are available in the financial market. There are mainly three indicators which determine the quality of your investment. They are security rating of the point of investment, rate of return on the investment and the liquidity of the investment. In general, these three indicators move in the opposite direction with respect to each other. If you increase the security rating of your investment, the other two indicators would tend to decrease. On the other hand, if you are willing to compromise the liquidity of your investment, you can enhance the rate of return. It means that you cannot get the top grade values of all these indicators simultaneously, It is important that you select the right balance of all these three in order to create the stable growth of the investment.
In the current financial market, we normally find two investment instruments which are in the highest demand. They are mutual funds and shares.
The mutual fund is like a pool of funds collected from a number of individual investors. The mutual fund company invests the pooled funds on behalf of the investors who may lack time or knowledge to have research on the money market. The mutual fund company invests the fund collectively in the market after proper study and research to earn the maximum profit. The investment of mutual fund is made in diversified points in order to offset the potential losses. The mutual fund company acts as a trust which is managed by qualified professionals. Fund Managers of mutual fund companies make sure that investment is done on different platforms by different instruments like securities, stocks, bonds, short term money market instruments and also in the commodity market.
By investing in a mutual fund, you allow the fund manager or portfolio manager to make an essential decision on your behalf. The profit earned by the mutual fund company is proportionately distributed among the investors on the basis of units of investment.
Shares or equity
Stocks, shares, and equity are another very popular way to invest in the financial market. Shares represent a limit value of capital investment of any company. Any individual can buy the ownership of a company proportionately by buying a certain number of equity shares. The profit earned by the company from its internal operation is distributors among the shareholders as a dividend on a periodic basis. Any individual has a choice to buy shares with a through the public offer of shares by a company or through a stock exchange at the prevailing rates.
Shares represent a small portion of company capital. By buying the shares of a company, you buy the ownership of the company in proportion to your investment which is represented in a number of equity shares. The values of shares vary according to the profit and loss position of the company during the specified period. One can also buy and sell shares of listed companies through an authorized marketplace known as a stock exchange. This type of market is generally called a secondary market. The fundamental dynamics of demand and supply in the market determine the value of shares in the secondary market.
Both mutual fund and share market can earn you profit, but how much time and efforts are given remain a vital factor in this respect. If you are unable to spend time or have a lack of knowledge about the financial market it is advised to invest in a mutual fund. The stock investment which is done by Mutual Fund Company is managed and handled by professionals, thus the chances of potential losses are minimal. In case you have sound knowledge of the stock market and are able to provide enough time in watching out the activities of the stock market and money market, it is suggested for direct investment in share market.