What are Debt Investments?
Debt is nothing but an investment that gives you a fixed return at the end of a certain pre defined period.
For eg: Suppose you give Rs 100 to your friend at the coffee shop and, being a financially mindful Finsnapper, tell her to return it to you after 1 year with 10% return. Then, she owes you Rs 110 (100+10) after 1 year.
This means that your investment was with a fixed return (10%) and a fixed tenure (1 year)
STARTER KIT - WHERE AND HOW DO I START?
Okay - so how do we start?
Simple:
1. Open a bank account/digital account(Paytm etc)
2. Goto debt section and transfer money to depsoits
3. They will ask details like tenure, recurring, maturity etc....
4. Fill it and move on
De-Jargonising Words Related to Debt
Tenure : Duration for which the money has been given/investment has been made
Maturity period : same to same as tenure
Simple interest : In the above example, Rs 10 given at the end of 1 year is simple interest. (10% of Rs 100).
Compound interest: What if, your friend decides to give the money back after 2 years? Then....she owes you: Rs 121 Principal: Rs 100+ Rs 10(interest on Rs 100 for 1st year)+ Rs 11 (interest on Rs 110 due at end of 1st year) ..... basically its INTEREST on INTEREST. ITS SIMPLE BUT THE MOST MISUNDERSTOOD PRINCIPLE OF FINANCE. Naturally, the more is the tenure, the more is interest on interest, hence, INVEST EARLY!!!!
Term deposit : Investment made in a fixed deposit for a fixed term(same thing!)
Recurring deposits : Investments made on a recurring basis in deposits(More of deposits just put regularly)
Bonds : Bonds are just fixed rate instruments - not the James Bond type bond or relationship bond - this is an instrument that is given by anyone with a promise to perform a particular task and give a fixed amount of money/interest
Premium : Sometimes, the interest due may be paid part regularly (called coupon) and part at the end of the maturity.The component paid at the end of tenure is called premium.
Debt Options
These are the 5 main options that you can choose from to put your money in.
The 6th prevalent option is then : DEBT MUTUAL FUNDS - the 4th episode of Finsnap Series
