Reviewed by Aug 27, 2020| Updated on
Investing essentials means the crucial things that one must know or have before investing their money into some assets. The first and foremost requirement for investing is to have knowledge about where to invest, how to invest, which assets to look into, and so on. There are some important terms that might be looked upon to understand the basics of investing.
Understanding Investing Essentials
There are some important terms that might be looked upon to understand the basics of investing.
- Investment Objective: This is to define if an individual is looking at long term or short term financial goal. Based on this goal-setting, one can decide on the type of asset suitable.
- Returns: Return-on-investment is related to the risks and prospects of the investment. If it's a low-risk investment with better prospects than expected, the return would be low and the capital value would be higher.
- Lock-in Period: The period for which a particular investment is restrained from being sold by the investor.
Net Asset Value: NAV is the value of one unit in a mutual fund scheme and is a measure of the funds performance.
Risk: Risk is the measure of the ability of an investor to withstand market fluctuations and volatility.
Factors to consider before you invest
It is recommended that investors go for a SIP instead of a lump sum investment. One should start investing early and enjoy the returns with the power of compounding.
When the markets are down, don't withdraw or stop the SIP amount. Instead, invest in some more assets at a cheaper price that will average the cost of assets. Also, this is similar to buying units at a higher price and selling at a lower price, it will turn the notional loss into an actual one.
Have a longer holding period while investing in equity-oriented assets. Taxes are lower on long-term capital gains as compared to short-term. Also, long-term investment helps in accumulating huge wealth.
In the present scenario, mutual funds are the most common assets used by the investors to earmark their hard money in India. Before investing in mutual funds, investors should understand the mutual fund types and their features. The mutual funds are divided on the basis of asset classes, structure, investment goals, and risk profile.