Rahul is an active investor and have invested in mutual fund and fixed deposits. He wants to diversify his existing portfolio by investing in derivative instruments but he is not sure about it. Suggest few derivative instruments to Rahul.
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Answer:
Investing is allocating money towards assets in the hope of making your future better. Investments are made with the view of earning returns, which grows your amount invested to a higher sum. We have covered the following in this article:
Why Should You Invest?
Investing is essential to achieve your goals. It is the only way to make your future better. By making investments, you are also saving and accumulating a corpus for a rainy day. Apart from that, making regular investments forces you to set aside a sum regularly, thereby helping you instil a sense of financial discipline in the long run.
Impact of Inflation and the Importance of Investing
Inflation, in simple terms, is a surge in the price of materials and services. It decreases the worth of your money and reduces your purchasing power. When there is a rise in the inflation rate, you buy fewer things with the same amount of money. You have no control over the inflation rate. If you are to stay ahead of inflation, you need to have more money to purchase the extent of the goods you intend to in the future with the money you have today. But, money doesn’t grow on its own. If your money has to grow, then it has to earn returns. To earn returns, you need to invest. Therefore, making investments is necessary to tackle inflation. Inflation at the rate of 8% means that you need 8% more money than what you have to purchase the same item next year. Here’s how inflation at 8% reduces the worth of Rs 1 lakh over eight years:
Amount in hand now Rs 1,00,000
After one year Rs 92,000
After two years Rs 84,640
After three years Rs 77,869
After four years Rs 71,639
After five years Rs 65,908
After 6 years Rs 60,636
After 7 years Rs 55,785
After 8 years Rs 51,322