It’s a big, scary world out there and the term ‘investment’ sounds scarier. But as they say, love it or hate it, you certainly cannot ignore it. A lot of individuals these days have a keen interest in stock trading and are highly passionate about investments. So, if you’re one of them, there’s no right time, but now, to get acquainted with some basic investment terms. It might sound gibberish at first, but it can prove to be extremely beneficial to you in the near future.
So don’t keep your investment plans on hold just because you aren’t well-versed with a couple of concepts. Brush up your basics before you venture into the world of investments:
When the term ‘asset’ is used for employees of an organization, it means that they add value to the company, which is why the company wishes to retain them. Similarly, in investments, the term ‘asset’ means something having value and expected to generate money for you when required to. Examples of assets include investments like bonds, stocks, real estate, etc.
Blue Chip Stocks
For those of you who follow the stock market very closely, ‘blue chip stocks’ is much-loved term. Blue chip stocks are stocks of large, well-established companies that are financially- sound, maintain a steady balance sheet and have an increasing dividend. These companies are generally market leaders and have a history of sound financial performance. When an individual makes an investment in such companies, the returns received by them are marginally higher.
When you take a company’s liability and minus it from the company’s total assets and its common stock equity, what you have remaining is known as the book value of a company. A book value is more effective when there is a need to assess the market value of an organization as it also helps in determining what is the exact positioning of the company in the market.
Bonds are the money that you lend to the government or a company. Over a period of time, the investor (which is you) is repaid the money along with an interest rate. Depending on market conditions, the value of your bond may rise or fall and they can also be resold before maturity (when they reach at the end of the loan period).
A dividend is a share of the company’s profits, which is given out to the shareholders on a quarterly or annual basis. Usually, the board of directors of an organization declares the dividend. But that said, it is not mandatory to declare a dividend, which is why not all companies do it.
Stocks represent nothing but the ownership in a company. When you buy stocks, you indirectly possess a small portion of the firm. Companies usually split their ownership stakes into shares, so the number of shares you buy determines your level of ownership in that particular company. When the company performs well, your stock value goes up, and when the company fails to perform, it reflects on the value of your stocks.
In simple terms, a mutual fund is money which is pooled in from a group of investors like you, which is then invested on your behalf in stocks, bonds, etc. by an investment company or an agent. One must remember that investing in a mutual funds is different from investing in stocks. The share of the mutual fund is invested in various stocks, instead of a single holding.
Additional read: Why SIPs are the ideal investment for every investor profile?
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