• The financial sector is a section of the economy made up of firms and

institutions that provide financial services to commercial and retail

customers.
• A strong financial sector is a sign of a healthy economy.
• The financial sector generates a good portion of its revenue from loans
and mortgages and thrives in a low-interest-rate environment.
• The sector is comprised of many different industries including banks,
investment companies, insurance companies, and real estate firms.

Real estate-
• Aspiring real estate owners can buy a property using leverage, paying a
portion of its total cost upfront, then paying off the balance over time.
• One of the primary ways in which investors can make money in real
estate is to become a landlord of a rental property.
• People who are flippers, buying up undervalued real estate, fixing it up,
and selling it, can also earn income.
• Real estate investment groups are a more hands-off way to make
money in real estate.
• Real estate investment trusts (REITs) are basically dividend-paying
stocks.

Allows Diversification of Asset - Real estate has almost no direct correlation with other popular
paper based assets like equity, debt etc.

In fact it has a negative correlation with assets like stocks, gold etc.

This means, the first benefit that real estate provides is diversification of asset.

Instantaneous Dual Income - Like stocks, real estate also provides possibility of dual
income.

Stocks provides short term income in form of dividend.

Real estate provides rental income in short term.

But the predictability of rental income is far more established than dividend income.

In long term, both stocks and real estate provides capital appreciation.

Stock can provide faster appreciation.

Real estate provides slower but steadier capital appreciation in long term.

A combination of rental income and value appreciation certainly beats inflation.

There is not other investment which can beat inflation as consistently as real estate property.

Actually it is not fair to consider real estate as only inflation hedge.

If invested properly, returns from real estate property outsmarts inflation by miles.

Saves Income Tax - If investment is real estate is made availing home loan, then tax
benefits can be claimed.

Disadvantages-

Capital gain tax is applicable - On sale of property at higher price capital gain tax is
applicable.

When property is sold within 3 years of purchase short term capital gain tax will be
applicable as per ones income slab.

But when property is sold after 3 years of purchase, long term capital gain tax of flat 20% is
applicable (after indexation).

High Cost - The biggest disadvantages of real estate investment is high capital requirement.

Because of high capital requirement, buying and selling of property is laborious.

This is one reason why so many people resort to loans to buy real estate property.

These almost every alternate service class people dwell under the load of home loan. Living
under loan for 1/3rd of your life often becomes a curse.

And why this is happening?

Because everyone wants to buy a home for self. Hence, price of real estate property is
extremely expensive.

High Cost of maintenance - Real estate also involves high management costs as
compared to other investments.

The owner of the property not only has to maintain the internals of the property but must also
pay the maintenance charges payable to the society.

This makes a real estate property more costly.

▪ Real estate property is very illiquid. A large sum of money gets locked which is
not so easy to redeem.
▪ When market condition is not so good, market price of real estate property may also go
down (temporarily).
 Banks
• Investment banking deals primarily with the creation of capital for other companies,
governments, and other entities.
• Investment banking activities include underwriting new debt and equity securities for
all types of corporations, aiding in the sale of securities, and helping to
facilitate mergers and acquisitions, reorganizations, and broker trades for both
institutions and private investors.
• Investment bankers help corporations, governments, and other groups plan and
manage financial aspects of large projects.

• Businessmen and investors across the world have a lot of questions that run through
their minds before they make a solid investment. “Should I invest in the bank? Which
bank? Will I be able to benefit from the investment? The relevance of the banking
and finance sector can be seen in the nine bank stocks that are listed in the NIFTY
50. Also, it is almost unbelievable to aim for economic improvement or recovery
without an investment in the bank. Because of these options, the banking department
still is the main choice of investors.
• However, despite this fact, investors and other individuals who wish to improve their
finances are advised to remain cautious and read through the pros and cons before
making the decision of finally investing your money in bank stocks because these are
sensitive to the ups and downs of the economy compared to other departments.

Advantages

• The Government Is Eager To Open More Accounts. Governments have an active

role in improving the country’s finances by opening more bank accounts. Some of
these accounts may not contain money, but their value continues to rise. The more
banks are opened, the more there is an increase in the stock prices.
• Banks Merge To Help Each Other. When small banks aren’t doing so well, the
government allows them to join the bigger banks that are performing effectively,
helping the banking sector survive, as well as the whole economy. For example, if
you have bought some shares from a major bank and three smaller banks
merge with it, the merger will most likely increase your shares from the original bank,
which is why it makes sense to invest in the bank.

Certainty of Future Funds

When you invest in a bank account, you can determine fairly accurately the amount of
money you will have at a specific date in the future. Bank accounts avoid market
fluctuations that are typical of other investments, such as stocks, and typically pay fixed
interest. This certainty is an advantage when you need a specific amount of money within
a short time frame, such as for a down payment on a house, or if you need to preserve
your capital for emergencies.
Bank Accounts are Insured

A bank account is one of the safest places you can invest your cash. As long as your bank
is insured by the Federal Deposit Insurance Corp., money in a savings account, CD and
certain other accounts is insured up to $250,000 per bank. If your bank goes under, the
government has you covered.

Disadvantages

• Increasing Competition Among Banks. More and more banks are opening every
year. While this will undoubtedly help improve the country’s financial situation, this
also restricts the complete function of the bank shares. All banks, old and new, will
find their means of pulling new clients through various plans or funds. There might
also be a competition in taking the other banks’ shares, which can be among the
biggest reasons for not investing in the bank.

• Non-Performing Assets. These have existed and continue to become a growing

problem in the banking and finance sector. NPAs are loan payments that have been
overdue for 90 days or more. If these increase, then the banks might be even more
careful when approving loans. That is why if you plan to purchase more bank stocks,
then you must ensure that your NPA is low or at least manageable.
• Increase In Borrowing Options. There are still many people who prefer to get a
loan from Non-Banking Financial Companies, which are financial companies or
businesses that don’t have a banking license. A reason why these NBFCs are so
popular these days is that borrowers are placed at a much lower risk compared to
when they borrow from the bank. When the NBFC has higher growth potential, more
people will choose to invest here.

Low Returns

The interest you earn in a bank account is typically lower than the returns of other
investments. When you factor in income taxes on interest, your money might fail to keep
up with inflation, or the gradual increase in the prices of goods and services. For example,
if you earn 4 percent annually in a savings account, pay one-third of that in taxes and
inflation is 3 percent a year, your money’s purchasing power will erode.

Account Fees

Banks sometimes charge fees that can exceed the interest rate on your account and eat
away at your investment. Some fees might come standard with a particular account, such
as a maintenance fee or ATM fees. A bank could impose other charges or possibly lower
your interest rate if you fail to meet certain requirements, such as a minimum balance.
Always read the fine print to understand your account’s terms.

Mutual Funds

Why do people buy mutual funds?

Mutual funds are a popular choice among investors because they generally
offer the following features:

• Professional Management. The fund managers do the research for you. They
select the securities and monitor the performance.
• Diversification or “Don’t put all your eggs in one basket.” Mutual funds
typically invest in a range of companies and industries. This helps to lower
your risk if one company fails.
• Affordability. Most mutual funds set a relatively low dollar amount for initial
investment and subsequent purchases.
• Liquidity. Mutual fund investors can easily redeem their shares at any time, for
the current net asset value (NAV) plus any redemption fees.

Mutual funds are currently the most popular investment vehicle for the
majority of investors but before investing in one its crucial to understand
the advantages they offer as well as the disadvantages.

Advantages of Mutual Funds

There are many reasons why investors choose to invest in mutual funds with
such frequency. Let's break down the details of a few.

Advanced Portfolio Management

When you buy a mutual fund, you pay a management fee as part of your
expense ratio, which is used to hire a professional portfolio manager who
buys and sells stocks, bonds, etc.1

This is a relatively small price to pay for getting professional help in the management of an
investment portfolio.

Dividend Reinvestment
As dividends and other interest income sources are declared for the fund, it
can be used to purchase additional shares in the mutual fund, therefore
helping your investment grow.

Risk Reduction (Safety)

Reduced portfolio risk is achieved through the use of diversification, as most
mutual funds will invest in anywhere from 50 to 200 different securities—
depending on the focus. Numerous stock index mutual funds own 1,000 or
more individual stock positions.
Convenience and Fair Pricing
Mutual funds are easy to buy and easy to understand. They typically have low
minimum investments (some around $2,500) and they are traded only once
per day at the closing net asset value (NAV).1 This eliminates price fluctuation
throughout the day and various arbitrage opportunities that day traders
practice.

Disadvantages of Mutual Funds

However, there are also disadvantages to being an investor in mutual funds.
Here's a more detailed look at some of those concerns.

High Expense Ratios and Sales Charges

If you're not paying attention to mutual fund expense ratios and sales charges,
they can get out of hand. Be very cautious when investing in funds with
expense ratios higher than 1.20%, as they are considered to be on the higher
cost end. Be wary of 12b-1 advertising fees and sales charges in general.
There are several good fund companies out there that have no sales charges.
Fees reduce overall investment returns.1

Management Abuses
Churning, turnover, and window dressing may happen if your manager is
abusing his or her authority. This includes unnecessary trading, excessive
replacement, and selling the losers prior to quarter-end to fix the books.

Tax Inefficiency
Like it or not, investors do not have a choice when it comes to capital
gains payouts in mutual funds. Due to the turnover, redemptions, gains, and
losses in security holdings throughout the year, investors typically receive
distributions from the fund that are an uncontrollable tax event.

Poor Trade Execution

If you place your mutual fund trade anytime before the cut-off time for same-
day NAV, you'll receive the same closing price NAV for your buy or sell on the
mutual fund.2

For investors looking for faster execution times, maybe because of short investment horizons, day
trading, or timing the market, mutual funds provide a weak execution strategy.

Gold
The pros of investing in gold
Inflation insurance – One reason people buy gold is to protect themselves from
inflation. The thinking is that if the Australian dollar gets significantly devalued, gold
will retain – and even increase – its value.
Disaster insurance – Similarly, some people regard gold as an asset that will always
be in demand, no matter how bad times get. The idea is that you will always have a
valuable asset, even if financial depression or a major war causes the economy to
collapse or your home to be destroyed.
Diversification – A lot of investors like to spread their money around, rather than
putting all their eggs in one basket. So you might buy stocks, bonds, property and
gold, figuring that if the markets crash and your first three investments plummet in
value, your gold will retain or increase its value.
Simplicity – Buying gold coins or gold bullion is easier than picking the right stocks
or property to invest in.
Tangibility – Some people feel uncomfortable buying assets they can’t touch – like
shares or cryptocurrencies – because they’re sceptical about whether an ‘electronic
file’ can retain value over the long term. So they prefer something tangible like gold,
which they believe is more likely to retain its value, no matter what happens in the
years
The cons of investing in gold
No yield – You can earn interest if you put your money in a term deposit, receive
dividends if you invest in shares or collect rent if you buy an investment property –
but you won’t get any yield from owning gold.
Low capital gains – Property and shares tend to gain more value in the long term
than gold. For example, while the price of gold increased by 132.9 per cent between
1980 and 2017, the All Ordinaries jumped by 1,133.5 per cent.
Annoying to transact – Dealers often pocket a significant margin when buying and
selling gold. Also, authenticity is an issue. When you buy, you’ll need to be sure that
you’re acquiring real gold. When you sell, you might have to prove that you’re the
genuine owner of the gold.
Hard to store – Once you’ve got gold, what do you do with it? Put it in a bank? Hide
it under the bed?
Volatility – Gold prices can make big changes in a short amount of time. For
example, prices climbed 30.6 per cent in 2010 and fell 27.6 per cent in 2013.

Stock Market
1. Takes advantage of a growing economy: As the economy grows, so
do corporate earnings. That's because economic growth creates jobs,
which creates income, which creates sales. The fatter the paycheck, the
greater the boost to consumer demand, which drives more revenues
 into companies' cash registers. It helps to understand the phases of
the business cycle—expansion, peak, contraction, and trough.
2. Best way to stay ahead of inflation: Historically, stocks have
averaged an annualized return of 10%.1 That's better than the average
annualized inflation rate. It does mean you must have a longer time
horizon. That way, you can buy and hold even if the value temporarily
drops.
3. Easy to buy: The stock market makes it easy to buy shares of
companies. You can purchase them through a broker, a financial
planner, or online. Once you've set up an account, you can buy stocks
in minutes. Some online brokers such as Robinhood let you buy and
sell stocks commission-free.
4.
Make money in two ways: Most investors intend to buy low and then
sell high. They invest in fast-growing companies that appreciate in
value. That's attractive to both day traders and buy-and-hold investors.
The first group hopes to take advantage of short-term trends, while the
latter expect to see the company's earnings and stock price grow over
time. They both believe their stock-picking skills allow them
to outperform the market. Other investors prefer a regular stream of
cash. They purchase stocks of companies that pay dividends. Those
companies grow at a moderate rate.2

5. Easy to sell: The stock market allows you to sell your stock at any time.
Economists use the term "liquid" to mean you can turn your shares into
cash quickly and with low transaction costs. That's important if you
suddenly need your money in a hurry. Since prices are volatile, you run
the risk of being forced to take a loss.

5 Disadvantages

Here are disadvantages to owning stocks:

1. Risk: You could lose your entire investment. If a company does poorly,
investors will sell, sending the stock price plummeting. When you sell,
you will lose your initial investment. If you can't afford to lose your initial
investment, then you should buy bonds.3 You get an income tax break if
you lose money on your stock loss. You also have to pay capital gains
taxes if you make money.4
2. Stockholders paid last: Preferred stockholders and
bondholders/creditors get paid first if a company goes broke.5 But this
happens only if a company goes bankrupt. A well-diversified portfolio
should keep you safe if any one company goes under.
3. Time: If buying stocks on your own, you must research each company
to determine how profitable you think it will be before you buy its stock.
 You must learn how to read financial statements and annual reports and
follow your company's developments in the news. You also have to
monitor the stock market itself, as even the best company's price will fall
in a market correction, a market crash, or bear market.
4. Emotional roller coaster: Stock prices rise and fall second-by-second.
Individuals tend to buy high, out of greed, and sell low, out of fear. The
best thing to do is not constantly look at the price fluctuations of stocks,
just be sure to check in on a regular basis.
5. Professional competition: Institutional investors and professional
traders have more time and knowledge to invest. They also have
sophisticated trading tools, financial models, and computer systems at
their disposal. Find out how to gain an advantage as an individual
investor.

Insurance
Protect Your Family
The death of a loved one is the most terrible event. Often we have to deal with situations
like this. With life insurance, things can be much easier and can help you overcome this.
Most people take out a life insurance policy with the idea of securing their families in
case of their demise.

Clear The Financial Mess

In many cases when a person passes away, the family has problems repaying their
debts. You know that you inherit both the good and bad assets.

Fortunately, life insurance policies offer a protection against unpaid debts – the policy
will cover all unpaid obligations. This includes personal loans, credit cards, and others.

Make A Profit
Permanent life insurance usually offers something referred to as a savings account –
accumulation of cash value. This account, of course, has an interest rate. The earlier
you purchase a policy, the better for you and the more returns it will bring.

Cope With Retirement

When people retire, their income decreases significantly. This could be a serious
problem at first when you have to adjust your financial management.
Numerous And Various Policies
When selecting life insurance there are so many different options to choose from. There
are term policies, which offer coverage for a fixed period of time and lower premiums.

Disadvantages Of Investing In Life Insurance

High Cost And Fees
If you want to take advantage of the investment opportunity, you have to purchase a
permanent life insurance. Only they offer customers the chance of a cash value
accumulation. Therefore, the premiums are much higher (sometimes ten times bigger).
In addition, there are plenty of fees and charges that you have to pay.

Uncertain And Negative Returns

Insurance companies talk customers into buying life policies by promising certain, and
usually high, returns. By accumulating cash value you earn an interest, which many
companies promise to be higher than most savings accounts. Even though often policies
go with a guaranteed minimum interest rate, the real return is not as high as that.

Lack Of Flexibility
Unfortunately, life insurance policies do not offer much flexibility. Life is not static.
Sometimes the more you predict, the fewer things happen the way you expected.

Not Really Tax-Deferred

Some life insurances boats with the fact that they are offer tax-deferred accounts. To
some extent this is true. For example, whole life insurances, give you the opportunity to
make tax-free “withdrawals” as well as to “grow” a tax-free savings account.

Post Office

Advantages of the Postal Saving Schemes

If you have planned to go ahead with the Post Office scheme, then you will get
several advantages. Some of those are enumerated below:
 • Easy investment– One of the reasons why you should be going ahead with
the post office saving scheme is that one can easily enrol for the same.
Moreover, it is a risk-free return, so you don’t really have to worry about your
money.
• Long–term investment gain– Some of the post office saving plans extend for
a period of 15 years, which makes it easy for the people who are retiring to get
the benefit.
• Tax exemption- Another advantage of post office saving scheme is that you
will get tax exemption under Section 80C for the deposit amount. The interest
earned on some new Post Office schemes, like Sukanya Samriddhi Yojana, are
also exempted from tax.
• A wide array of options- Apart from the tax benefit and interest earned, the
post office schemes also have offered a wide spectrum of schemes which you
can choose as per the budget and investment requirement.

PPF

Benefits of PPF:

▪ Complete capital protection, backed by a sovereign guarantee

▪ Tax-free earnings upon maturity
▪ Returns guaranteed, as per the interest rates determined by the Central
Government (these are set on a quarterly basis)
▪ Partial withdrawal and loan facilities
▪ Option to extend the scheme tenure (with or without contributions)
▪ Easy account opening through Post Offices or banks
▪ Minimum investment of just Rs. 500/- per year, making it ideal for small savers

Limitations of PPF:

▪ Difficult to consistently beat inflation with the PPF interest rate

▪ High lock-in period of fifteen years
▪ No facility for NRI’s and HUF’s to open a PPF account
▪ Only one account allowed per citizen
▪ Account cannot be closed prematurely before maturity
▪ Maximum investment per year is restricted to Rs. 1,50,000/-