Investment helps in the growth of the economy because it establishes economic activity like buying and selling of goods and services and engaging people. Employed people get paid from which they save, invest or spend their money. If these employed people spend their money then the businesses make more profits. The profits can be distributed to the owners who will then have money to invest or spend. Businesses can also reinvest their profits in the further business activities that expand the economy.
Of course, an excessive amount of good aspect can be terrible. If every single individual is only investing then no one is consuming, the consumer-oriented businesses like the restaurants and the retail establishments will suffer a lot. This will result in layoffs and reduced consumer spending. The main principal is to find the convenient balance between both investment and consumption.
Tax saving mutual funds is similar to any other mutual funds with the added bonus that the investments which are made in them are qualified for tax benefits under the section 80C. Most of the tax saving mutual funds is like the ELSS schemes which make the investments in the equity markets.
An equity fund is a mutual fund that invests basically in the stocks. It can be strongly or quietly managed. Equity funds are also called stock funds.
A debt fund is an investment pool, like a mutual fund or exchange-traded fund, in which the core holdings are the fixed income investments. A debt fund can invest in either the short-term or in the long-term bonds, securitized products, money market instruments or floating rate debt. The fee ratios on the debt funds are lower, on average, than the equity funds because the comprehensive management costs are lower.
A fixed deposit (FD) is a financial instrument administered by the banks which gives the investors a higher rate of interest than a regular savings account, until the given maturity date. The creation of separate account may or may not be required and is known as a term deposit or time deposit. They are considered to be very safe investments.
The Three Types of Investment
Investment is something that is purchased with money and is expected to produce income or profit. Investments can be divided into three basic groups:
Ownership investments are the most volatile and profitable class of investment.
Lending investments allows you to be the bank which tends to be lower at risk than the ownership investments and return less as a result. A bond issued by a company, over a certain period will pay a set of amount during the same period, the stock of a company can either double or triple in the value by paying far more than a bond or can lose massively and go bankrupt in which case bond holders usually get their money and the stockholder often gets nothing.
These are the investments which are as good as cash where it can be converted back into cash.
The payments towards mutual funds can either be made directly by cheque or by direct debit.
When you apply for the SIP, you will be informed about the date on which you are required to make the payments. You can choose any of them.
The minimum investment amount will basically depend on the mutual fund provider but in general, it can be about Rs. 5,000.
The choice is left on the investor as both the styles of the investment which is allowed in the mutual funds. The benefit of investing in the monthly instalments is that the risk of loss can be avoided from the market performance on the entire investment.
There is no upper limit on the amount that can be invested in these funds.
You are allowed to switch between funds but not the entire amount, only the investment part can be switched.