05 investment Terms Every Beginner Should know
Investment terms for beginner, investment terms for stock market beginner, 05 Investment Terms Every Beginner Should Know?
here are some things every beginner should know about!
1. Compound Interest :
Compounding is the process in which the gain or interest received on your investment gets reinvested to receive more gain or interest.
2. Market Capitalization :
Market capitalization is the aggregate valuation of the company based on its CMP and the total number of outstanding stocks.
3. GDP (Gross Domestic product )
GDP is the final value of all goods and services produced within the Country During a specific period of time.
“GDP contains the end worth of the product, but not the pieces that go into it.”
For example, an Indian Shoe manufacturer uses shoelaces, soles, and other materials made in India, but only the value of the shoe gets counted; the shoelaces don’t.
The monetary worth of all completed products and services produced inside a country over a certain period is referred to as GDP.
“The GDP is a measurable pointer that characterizes the financial advancement and improvement of a country.”
When economists talk about the “size” of the economy they are referring to GDP.
4. P/E Ratio (price to Earning ratio ) :
PE ratio is one of the most widely used tools for stock selection. It is calculated by dividing the CMP of the stock by its earnings per share. “It shows the amount of cash you are prepared to pay for every rupee worth of the income of the organization.”
for Example
you buy 1 kg of apples at Rs 100 per kg, only to find out they were available at Rs 80 per kg just a few feet away? “Is it true that you aren’t disillusioned at paying more for similar nature of apples?”
The same also applies to stocks.
“On the off chance that you purchase a portion of organization or company ‘A’ for RS 100 and later on discover that the portion of organization ‘B’, with better-procuring possibilities, is accessible for RS 60, it will undoubtedly baffle you.
So how do you find quality bargains? How might you decide if the current stock prices make sense? Does the cost legitimize the acquiring possibilities of the Company?
The Ans to these Que is: (PE) ratio
5. Dividend :
The dividend is the amount distributed to shareholders of a company. Organizations use it as a mode to distribute the company’s profits to its shareholders. “Develop organizations with predictable income in the course of recent years deliver profits to their investors.”. Additionally, the confidence of investors in the organization increments with standard profit installments. In addition, the offer cost of these organizations will in general be higher. It is paid out per share in the form of cash or additional stock. Also, dividends are taxable in India
06 Mutual Funds :
What are Mutual Funds Investment?
As you see everywhere Mutual funds Sahi hai advertised are come on television or on OTT platforms.
let’s understand in short what is mutual Fund and how they work.
Suppose You want to go from Mumbai to Pune. You have two options. The one which you know how to drive the car, so he go itself. But he doesn’t know how to go to Pune or he doesn’t know how to drive a car then what will he do. Definitely, he hires a driver.
The Same difference is in the stock market and Mutual Fund.
In the stock Market If you Have Enthusiasm about the Stock market or you have knowledge of stock how it works, What is fundamental analysis then you can invest your money in direct equity.
But You don’t have so much time to spend on the stock market like to find companies that are best for better investment purposes, then you can go through mutual funds to invest your money.
In Mutual Funds, they assign fund managers who have Experts in finance, Stock market. They Collect Money From a bunch of People and invest in different investment options like Equity, Debt Funds, etc.
They Charge His Fees For your money investment that term is called an Expense ratio.
07 Index Funds :
What is an Index Fund?
An index fund is a passive fund. First of all, before understanding index funds you have to know about the difference between active funds and passive funds.
Active Funds – Are those funds, Who Actively managed by fund managers means they have an eye on their investment regularly. So their Expense Ration is High.
Expense Ration means Fund Managers Take fees for managing your investments.
Passive funds are those funds which not require attention on a daily basis. So passive fund investment has less expense ratio.
So I assume, you understand the difference between active funds and passive funds.
Let’s talk About Index Funds which consist of Indices like Nifty 50, Sensex, Etc.
Index funds invest your money in indices like nifty 50 means nifty consists of the top 50 companies of India according to market capitalization.
Mean Suppose Reliance has 10% weightage and Hdfc has 12% weightage in nifty so your money invests according to the nifty weightage of companies.
Thanks for reading
Well explained 👌