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Writer's pictureRaghava Chowdam

What is Money and What are the Rules of Investing in this Digital World - What To Know:

Updated: Mar 14, 2020

Money:

Let's keep it simple and stupid, the way you believe and see money is way more different than what it is. If you see in the olden age there's no such thing called money, we don't even know how it came into existence and who invented it but the soul purpose of the money is to create the process of buying centralized. For Example let's say if you want to buy an apple from market, what will you do - steel, right? No, we buy through returning the value that the apple holds to the retailer. When the money was not invented, the same process was done by exchanging one product for another that break-evens the value of both. As I mentioned, to keep it more centralized, gold coins were used as a first money resource to exchange goods and services but later on they were replaced by normal coins and from there, to keep it portable paper cash was invented, now to make it more portable we are using digital currency authorized by banks through our smartphones.


Are Paper cash and Digital currency same?

Let say I'm having 1000/- in my bank account, when I withdraw the amount 1000/- through ATM are they both same? NO, the value they posses is same but they are totally different. The math number you see in your bank account is a money that are generated by banks. Let's say, you took a loan from bank and they transferred amount to your account, that doesn't mean they deposited physical cash into your account. The bank assigned a digital value into your account which will be equal in the value of physical cash. This is the agreement made between banks and RBI to keep the value same. But there are lot of side affects and defects of this, that I don't want to touch now. The conclusion is, they are different but equal in value.


Rules on Investing:

For simplicity in mind, these are categorized for better understanding:


  1. Money

  2. Vocabulary

  3. Risk Tolerance


Note: The suggestions are applicable for investing not for trading. An investor is the one who invests the capital and removes it after reaching his/her goal but a trader is basically the one who keeps the money for "x" amount and removes it in quick successions for "x+" amount.


Money:

You should have the capital to invest. The capital size varies from individual to individual. I see most of the people, when the question investing comes there answer is I don't have enough money, I'm not ready, it's too risky. Let's be honest, if you come under such category, you will be keeping most of your money in banks through savings account, FD's, PPF's etc. you're doing better, when compared to normal people by getting returns of 3-4%, 7% and 8% in savings, FD's and PPF's but do you know, how your banks are manipulating you by giving little atom to you and taking the big bun to themselves with your money? The money you've deposited are given as loan to other customers and add an interest on them based on their APR and giving you 7% in return. Just think about it, until and unless you're goal is for more security.


Vocabulary:

Most people why they get away from investing is because they think they should know lot about investing and will lose there money if they don't. That's the reason why most people prefer FD's and don't realize the back stabbing by banks on them. When you are getting into new field you need to know vocabulary on that field. Let's say you're a technical student/programmer, the term kernel, drivers, pointer, arrays......they are normal to you but not to the commerce student and believe me they are not rocket science to understand. In the similar way, you need to understand the vocabulary of investing and money, with the terms like Capital Appreciation, Inflation, Investment Objective, Equity funds, debt funds........... Once you have little understanding on them everything is simple.


Risk Tolerance:

When you are investing, don't just invest by looking at increase in stock price number. You need to do your research on the company and products they make by looking at their portfolios. If this seems time consuming to you, this is where mutual funds comes into picture. You can invest in mutual funds as low as 100/- with the help of systematic investment plans (SIP's). This money will be collected from more number of people and club to a bunch amount and assign it to the fund manager. He will take care of investing for you but your returns will be lowered as well. You might have a question like what if the fund manager goes away with my money? This is why all this money will be kept under a trust not under a fund manager and these funds will be backed up by government.


What is Sensex and nifty 50:

We hear people shout loud, when Sensex and Nifty50 rises and the same people sad when they go down. Sensex and Nifty50 are high cap and mid cap represents the index value of the stocks. But what are high cap, mid cap and index value? Just mentioned above, they are just vocabulary. The index value represents the aggregate value of the shares by comparing all the companies comes under Sensex. In the similar way it is also done for Nifty50 as well with the companies listed in it. Here Sensex is the large cap as it holds all big companies from different fields like Telecommunications, Banking Sectors, Cement, Food etc. When it comes to mid cap, the aggregate is done in one particular field, for example let's take food, in food we have vegetables, fruits etc. The starting value of Sensex is taken from 1979 as a base reference. All the ups and down are based on aggregate not just by single company. If the Sensex goes up, it means most of the companies shares has increased and vice versa.



What are Difference possibilities to invest Money:

  1. Bank savings account (3-4% returns)

  2. Bank FD's (7-8% returns)

  3. Gold and Silver (Tangible asserts)

  4. Real estate (Varies and tangible asserts)

  5. Mutual funds (9-15% based on how long you invest)

  6. Your own business (This is where you can maximize your returns but you might loose everything)

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