Asset management is the management of investments on behalf of other people with the intention of growing their money overtime keeping in mind the profile and the goals of the individual.
Since there are multiple asset classes to choose from and hundreds of stocks to invest in, asset management requires scrutiny and study. Thus, there are asset managers who do the process on behalf of individuals at a fee.
The horns of a bull are always facing forward and upwards. On the other hand, when the bear claws onto something, the marks are left in a downward motion. This resemblance was then met- aphorically related to the stock market and its momentum. A bull market is a market that is on the rise with stock prices moving upwards and showing positive market signals. A bear market is when the market and stocks are declining in value. A market is said to be in a bull run when it exceeds in value by more than ~20% and is said to be in a bear run when it declines in value by more than ~20%.
While there are no guidelines to qualify as a blue chip stock, it is a term used in the stock markets for companies with a sound history of earnings, profit, performance and dividend payments. In the Indian stock market, companies such as Tata Consultancy Services, Infosys, HDFC Bank, Asian Paints, Maruti Suzuki are considered as blue chip companies. An investor investing his/her money in such companies is exposed to lower risk and steady returns.
To combine philanthropy and return on investments is the aim of Blended Finance. It is the strategic use of finance towards the development in developing countries. One cannot ask what is the difference between Blended Finance and Impact Investing. It isn’t comparing apples to oranges but instead comparing apples to apple pie. Aka, while Impact Investing is a structure to investing, blended finance is a strategy that combines investors, companies and government agencies to invest for development involving extreme high risks.
Carbon footprint measures the impact of carbon dioxide emissions in the atmosphere produced due to any activity, product or service. According to WHO, a carbon footprint is a measure of the impact your activities have on the amount of CO2 produced through the burning of fossil fuels and is expressed as a weight of CO2 emissions produced in tonnes.
Every corporate company in India is required to contribute a certain percentage of their profits towards social and environmental causes. This mandate is known as Corporate Social Responsibility. The causes can range from educational programs, healthcare, social welfare and environmental conservation. In India, the TATA Group is one of the biggest advocates of their CSR budget, contributing to various welfare programs creating real and measurable change.
Do not put all your eggs in one basket! Diversification is simply the old saying used in the investing world. As an investor, investments should not only be diversified amongst the various stocks but also among different asset classes. By asset classes we mean real estate, gold, stock market, bonds and PPF’s.
While applying to your dream university, you ideally also apply to 2-3 backup universities just in case. You diversify your college application to reduce the risk of not getting into a program at all. Similarly, diversification is needed to reduce the risk of investments among the portfolio.
Also, during times of financial turmoil, one asset class may perform better than another.
Environmental, Social and Governance are the three main criterias investors view when looking at investing from a sustainability point of view. Just like profitability and revenue as data points to look at while forming an investing criteria, funds have started maintaining an ESG score too. Higher the ESG score, the better is the company doing from a sustainability point of view. Since March 2020, ESG funds have observed an overflow of cash due to the alarming observations catering to climate change and environmental degradations.
Green Finance promotes and supports the flow and shift in capital from traditional financial instruments to products that enhance the development and implementation of sustainable business models. Green Finance is a subset of Sustainable Finance and mainly promotes the preservation of the environment and tackle climate change. Green Finance includes products such as Green Bonds, Green Loans, Green Investment Funds and Climate Risk Insurance.
The index is a representation of the stock market on a given day. It helps investors track the overall performance of the stock market on that day. When you hear the statement, “The market is soaring today or the market is a bloodbath today”, it is usually a representation of the index. The index includes stocks from various segments such as IT, automobile, oil, FMCG to ensure the index is represented fairly. Indian stock market includes two major indexes, i.e. the Nifty (an index of the national stock exchange) and Sensex (an index of the Bombay Stock Exchange). Nifty50 comprises of 50 large cap stocks while the sensex is a representation of 30 large cap stocks.
Initial Public Offering, IPO is when shares of a company are available to buy for the public for the FIRST time. Post the IPO, the company is listed on the stock exchange and investors can trade in the stock publicly.
Through IPO a private limited company becomes a public limited company. The idea of an IPO is for the company to raise funds either to pay off debt, expand into future projects or simply to raise capital overall growth. Currently, IPOs are very hot in the Indian stock market and many investors invest in an IPO for listing day gains.
Impact investing are investments made with the intention of creating a social good and earning a financial return. Investors look for companies that are either working towards a sustainable future or innovating in products that are good for the planet. Alongside, Impact Investing aims to empower the overlooked societies, addressing social concerns and also ensures the employees of the company are treated with respect.
A daily affair
Intraday trading refers to buying and selling of stocks on the same day before the market closes. It’s a short term thing, just a few hours!
A mutual fund is a professionally managed fund that invests the money of individuals with the aim of gaining returns over time. Think of Mutual Funds as a carpool, where there is one designated driver aka the fund manager and other passengers as the investors. The passengers use the carpool to reach the final destination. The driver decides the route to take.
Similarly, in a mutual fund, every individual invests according to their means to reach the final destination of financial returns. The driver, aka the fund manager decides where to and how to invest the money.
Mutual funds are one of the widely used investment schemes by investors with minimal to no effort. The maximum work an investor needs to do is study the various mutual funds and fund managers and then sit back and watch their investments grow!
Long term investing is holding investments for a minimum year or longer. The idea behind long term investments is to bear the benefits through time value of money.
For instance, when you decide to go to university to study a particular course, the degree requires around 3-4 years of hard work and diligence. It is a long term decision but the gains are for years to come. Similarly, long term investments will reap the benefit over time.
Short Term Investing
On the other hand, you decide to do a short course on Coursera or Udemy, to gain a fair amount of knowledge on a particular topic in a period of 3-6 months. The knowledge that you gain over this short period of time could be entirely fruitful to you, or you might have to study further to gain additional knowledge.
Similarly, short term investing is investing in products for a period of a year or lesser. The idea is to gain returns over a short span of time. Usually experienced investors or daily traders indulge in short term retail investing.
The Paris Agreement brings various nations under one global cause of fighting Climate Change. Effective from November 2016, the Paris Agreement marks a new direction for global climate cooperation. The main aim of the Paris Agreement is to keep global temperature rise below the 2-degree celsius pre-industrial level in this century.
The risk and return trade-off is the relationship between how much risk an investor is willing to take for a certain percentage of return. According to this trade-off, higher the risk associated with the investment, higher should be the return generated. It essentially answers the question of how much gamble a person is willing to take for their financial return. Let’s say for example, you have the choice to invest in a local grocery store which you know is going to do well. The scope of growth is confined to the locality but it will have steady income over the years. The other option is to invest in an e-commerce grocery store which can either become a branded name over time or shut down. The local store has lower risks and hence lower returns. The e-commerce grocery store can provide you bigger returns over time or nothing at all! Ergo, the risk-return trade off.
Imagine a vegetable marketplace where vendors have set up shop to sell their produce and wholesalers and individuals are quoting their price to buy the same.
Similarly, a stock market is a marketplace for institutional and individual investors to buy and sell shares of a public limited company.
Investors (individuals like you as well as professionals) invest in the companies they believe will provide them with a financial return over time. The stock market is extremely reactive to market news, political scenarios, company general meetings and the economy of the country in general.
When a company issues an IPO, a part of the company is open to the public market. The public can then get a piece of ownership in these companies by purchasing their stock. This part ownership of a company is known as stocks. An investor can purchase even a bare minimum of 1 stock. The price of the stock is then decided by the supply and demand of it on the stock exchange.
Sustainable Finance refers to any financial strategy which involved the consideration of the environment, social and governance factors while making investment decisions. Sustainable finance is the broad umbrella term which then includes investment methodologies such as Negative Screening, ESG, Impact Investing etc. In short, for eg., all ESG investments come under sustainable finance, but not all sustainable finance investments are ESG.
In traditional finance, one of the main parameters investors considered while investing is the profit generated by the company. The balance sheet of a company ends with the final value being the profit and hence the term ‘bottom line’ was used in reference to profit. Over time, investors and economics believe, businesses should not only focus on a single bottom line of profit but a more inclusive parameter including people, planet and profit. That led to the term ‘triple bottom line’ being coined. In short, the triple bottom line is a framework that incorporates three different dimensions of environment, social and financial aspects aka People, Planet and Profit.