As first-time investors, we are not aware of fin-savvy terms that are commonly used in the financial industry. To help you understand some of the buzzwords used in the world of investments, Geto (www.getoapp.com) has compiled the 6 most commonly used terms that you should know if you are new to investment.
- Asset:
An item or property owned by a person or an organization that has a significant economic value. It is a resource that can be used in a current or future period of time to generate revenues.
(e.g., a house, financial security, investments, artworks, jewelry, or personal property)
2. Asset Class:
It is a group of assets or investment resources that exhibit similar economic characteristics. They are typically traded in the same investment market and are subject to the same laws and regulations.
(e.g., Cash and cash equivalents, Bonds or fixed income, Stocks (equities), Real Estate, etc)
3. Risk Profile:
It indicates your risk appetite and the amount of risk you are willing to tolerate when it comes to investing your money as a first-time investor.
4. Investment Strategy:
What is an Investment Strategy? The term Investment Strategy refers to a set of guidelines or principles prepared for an individual to analyze the right investment plan to achieve their financial goals.
As a beginner, it is traditionally wise to do research and study multiple investment plans and strategies in order to align your investment objectives.
5. Interest:
Interest, generally addressed as the Rate Of Interest, is the monetary value charged for the privilege of borrowing or lending money.
The interest amount is calculated as a significant percentage of the loan you have taken. You are likely to earn interest value when you lend money or deposit in an interest-bearing bank or organization. There are various different types of Interest to calculate, the basic calculation of Simple Interest is carried out as -
(Principal Amount x Rate Of Interest x Time Period) divided by 100.
6. Compounding:
It is the potential of an asset to generate earnings from an amount, that is already invested, as interest or capital gains. It exponentially grows over a period of time by the addition of earnings to the invested principal amount. Every round or set of earnings gets added to the principal amount that yields the next round of earnings.
For example, if you are investing Rs 200 with an interest rate of 8% per year, then you are more likely to earn Rs 16 (8% of Rs 200) which eventually gets added to your principal amount by summing it up as Rs 216 (Rs 200+ Rs 16) by the end of the year. If you are wisely reinvesting it, then your principal amount becomes Rs 216. By the end of a year’s time, you will be potentially earning Rs 17.28 (8% of Rs 216) which is comparatively higher than the previous year’s earnings.
We hope the article was useful to you!
If you are a beginner and got more queries related to investments, let us help you!
Don’t shy away from asking basic questions to us, we are always at connect@getoapp.com
Cheers!
