Investing Basics: Part 1

Investing basics is a series of posts on investing and investment products.

The first thing which you should know is investing can be segregated into savings products (like FDs, Saving account etc.) and growth products (like Stocks, MF etc.)

Imagine your entire life to be divided into income (Asset) side or expenses (Liability) side. That whole overview of life is called the life balance sheet as shown below.

For each and every section there are unique product characteristics, this is common for most of us.

For example, the primary residence is real estate, ESOP is equity and so on. So now let’s see what are the types of products available to us to meet the above requirements.

Now let’s assume we have Equity, Debt, and Cash for now. Where cash is nothing but your savings account, debt is your FDs or Debt mutual funds etc. and equity is ESOPs, Shares, and equity mutual funds.

Let’s understand Equity first, which is nothing but ownership in a company (listed or unlisted on an exchange). Highest Risk and highest possible returns.

Debt is like owing loans given to other companies. You earn a fixed income from it periodically. Obviously less risky than equity and hence lower returns.

Within debt and equity, there are various subcategories which are again unique in characteristics mainly around risk/return profile.

Now let’s see how they are further classified and where does insurance fit in!