HOW TO USE DEBT TO EARN MONEY? EARN 18-20% RETURNS USING DEBT:

HOW TO USE DEBT?

as we all know that most people borrow money and take on debt to buy homes, and cars, fund their education, or move on with personal financial constraints.

here we will discuss how you earn money by lending your money, to be more precise how can you become a bank by lending money without actually owning a bank?

with the help of this, we can convey to you that even a beginner can start the process of earning from their little savings and proceed with their life with the concept of investor.

TYPES OF DEBT THAT CAN BE USED TO EARN MONEY:-

• DEBT MUTUAL FUNDS
• NCD -[NON-CONVERTIBLE-DEBENTURES ]
• P2P LENDING
• CROWD PURCHASE AND LEASING OF ASSETS TO COMPANIES
• LENDING TO GOOD PRIVATE LIMITED COMPANIES

WHAT IS DEBT? THE MOST COMMON DEFINITION

” WHENEVER WE USE THE WORD DEBT THEN WE ONLY THINK OF ONE WORD IN OUR NATIVE LANGUAGE (UDHARI) – WHICH HAS CERTAIN DIMENSION OF NEGATIVE ADVERSE BUT WE DO GENERALLY FORGET IS THAT IT HAS SOME POSITIVE IMPACT AS WELL IF USED CORRECTLY”

DEBT MUTUAL FUNDS:-

Generally, we do hear a lot about equity mutual funds and their categories, where the company takes money from several investors and puts it into a portfolio of stocks.

debt mutual funds are used to minimize the risk loss to your interest income and capital by investing in a diversified portfolio of debt instruments, moreover, debt mutual funds invest in high-rated debt instruments to further minimize your downside.

TYPES OF DEBT MUTUAL FUNDS:

SHORT-TERM DEBT FUNDS :

short term debt funds are for investors who wish to earn more interest than their savings account for 3-12 months. these are liquid funds where you can access your money in the short term with little or no penalties investors can typically expect returns of 6-9% per annum.

MEDIUM-TERM DEBT FUNDS:

these are dynamic bond funds, which are used by investors who wish to earn more than FDs for 3-5 years. these mutual funds offer better returns than an FD and are also safe because of the diversification they offer.

NCD’S -[ NON-COVERTIBLE-DEBENTURES]

these are debt instruments sold directly by companies who wish to raise debt from several retail, hNI(HIGH-NET-WORTH-INDIVIDUAL), and institutional investors. NCD helps mostly publicly traded companies gain access to funds for working capital, bank loan repayment, or expansion without the need to give any collateral.

the best thing about NCDs is that they encourage you to invest in a small amount which becomes profitable for an investor, even who is a beginner, the amount you want to invest depends upon your liquidity and risk appetite.

you can invest amounts as low as rs.5000 and as high as a couple of lakhs in NCDs and earn a monthly return, which provides you a great cash flow for the future.

P2P LENDING -[ PEER-TO-PEER-LENDING]

did you know you can actually be the bank with as low as 5000, with the help of p2P lending, highly financially rewarding?

now there are several p2P websites like www.i2ifunding.com and www.lendbox.in, which help investors like us to get a general rate of 8-20%, it also provides a great allocation to your portfolio as well.

CROWD PURCHASE AND LEASING OF ASSETS TO COMPANIES

can you imagine being able to buy assets like chairs, ACs, servers, etc., for a big corporation and earn a lease income from them?

yes, definitely we can earn a lease that yields around 20-21% returns pre-tax. due to the help of technology the art of crowdfunding has been easier since now we have websites like gripinvest.in and start your investing journey from as low as rs.10,000 and become a part of an investment tranche.

LENDING TO GOOD PRIVATE LIMITED COMPANIES :

although it’s a category of debt investments, we would not recommend investing directly in any private limited company unless you know know how to analyze and make research on it and also if you do not know the promoters personally.

and if you can analyze a private limited company then it would be very good for you to invest in this game, which will provide you approximately around 17-18% returns, only if you lend to good companies that do not have any collaterals and hence no easy access to bank finance.

COUNTERPART

WHATEVER WE HAD DISCUSSED ABOVE IS JUST BASED ON VERY BRIEF INSTRUCTIONS, THE DETAILS CAN BE RESEARCHED BY AN INVESTOR FURTHER.

EXTRA:

an incredible 96%of actively managed mutual funds fail to beat the market over any sustained period of time!

ideas keep trying to lodge in your head, such as I’m going to make ten million dollars or I’m going to be financially free by the time I’m forty! but your upper, conscious brain goes, “screw you! there’s no way in hell that will happen! it quickly rejects the big idea and bounces back into its spacelike like a tennis ball. but if you resolve within yourself the sense of absolute certainty that I m going to do this and then you start to build a plan.

something extraordinary happens. you begin to develop the certainty you can actually achieve it, and with newfound confidence, you suddenly see there is a way to get it done .you’ll find a role model who already achieving what you are after, and you’ll take massive action.

the goal seeps down into your subconscious, and it goes to work to make your dream a reality. that’s when the magic happens!

now, I doubt that you think you need 1 billion to fulfill your financial dreams. but it is willing to bet that the number you chose to feel financially secure or independent is pretty intimidating. almost everybody makes that number bigger than it needs to be because he or she doesn’t take the time to calculate what it really costs to live at different lifestyle levels.

and that’s why so many never begin to work towards it . they talk about a good game, get excited about it, they tell people their big dream but can never act on it.

WHAT IS COMPOUNDING

Whenever We Go Through The Word Compound Or Compounding The First Thing That Strikes Our Mind Is Compound Interest Which Basically We Had Done When We Were In High School In Mathematics, But If We Look At The Stats We Observe That Hardly Someone Understands The Upward Cycle Of Compounding.

It Must Be Very Clear That Even A Beginner Can Understand The Meaning Of Compounding, Which Relates With Respect To The Compounding Of Knowledge Followed By The Compounding Of Money. Generally, We Are Getting A Distinct Meaning Of Compounding Which Is Your Sum Of Something Plus The Interest Generated On It, Whenever We Say To Sum It Always Does Not Represent Money It Also Represents The Knowledge That Uses The Process Of Compounding.

If We Relate The Power Of Compounding With The Factor Of Snow, Then Let’s Listen To Famous Glaciologist- GWEN SCHULTZ- ” It Is Not Necessarily The Amount Of Snow That Causes Ice Sheets But The Fact That Snow, However Little, Lasts”-

The Big Takeaway From The Ice Ages Is That You Don’t Need Tremendous Fore To Create Tremendous Results.

The Lesson Declares, That If Something Compounds-If A Little Growth Serves As A Fuel For Future Growth- A Small Starting Base Can Lead To Results So Extraordinary They Seem To Defy Logic.in General, It Can Be So Logic-Defying That You Underestimate What’s Possible, Where Growth Comes From, And What It Can Lead To.

“ THE KEY TO MAKING MONEY IN EQUITIES IS NOT TO GET SCARED OUT OF THEM”

~PETER LYNCH

HOW TO CALCULATE COMPOUNDING?

Compounding Works On The Easy Process And The Name Of The Process Is PERSISTENT – (CONSISTENCY), With The Help Of Investing In Ourselves Via Knowledge Or Investment In The Economy To Generate Money A Steady Mindset And Steady Nature Towards Growth Is A Must Requirement That A Person Must Have.

Whether You Want To Invest Per Month Or Per Year Depends Upon The Individual, But The Very Basic Concept Of Compounding Comes To Play When We Let The Money Grow For Long Years. You Can Calculate The Interest Valued Upon Your Principle Year On Year With The Help Of The Compounding Calculator Given At The Link Https://Www.hdfclife.com/Financial-Tools-Calculators/Compound-Interest-Calculator

Let Us Understand With The Help Of An Example : 

Two Friends Mike And Robin Decide To Invest Rs.2000 Per Month, Mike Starts To Invest From The Age Of 19 And Keeps Going For 8 Years Till His 27. All He Add’s Up To Is A Total Of Rs.1,92,000, And Mike Gets A Return Of Around 14% ( Which Is The Average Return Of Our Sensex) And By The Time He Retires At 65 How Much Would He Have?

Mike’s Return On Investment Would Have Been Rs.5,16,00,000 (5.6 Crore), Which Is A Huge Return On Retirement Without Even Thinking To Work Again And Living A Stress-Free Life.

His Friend Robin Gets Off To A Slower Start. He Begins Investing Exactly The Same Amount, That Is Rs.2000 Per Month But Doesn’t Get Started Until Age27. He Is Still A Disciplined Guy, And He Keeps Investing Rs. 2000 Every Month Until He’s 65 A Period Of 39 Years, His Money Also Compounds To 14% Per Year On The Sensex. 

The Result Of His Investment Is That When He Retires At 65 He Gets Rs.3,93,00,000 (3.93 Crores), Now What Just Happened? Since Robin Invested More As Compared To Mike That Is Rs.9,36,000 But How Come His Returns Are Relatively Low Over The Same Rate Of Interest.

Robin Invested 9 Times More As Compared To Mike Yet Mike Ended Up With An Extra 1.67 Crore, Despite The Fact That Mike Didn’t Invest After His 27! 

THE MAGIC OF COMPOUNDING

What Explains Mikes Incredible Success? Simple By Starting Earlier, The Compound Interest He Earns On His Investment Adds More Value To His Account Than He Could Ever Add On His Own.

“THAT’S THE AWESOME POWER OF COMPOUNDING. OVER TIME THIS FORCE CAN TURN A MODEST SUM OF MONEY INTO A MASSIVE FORTUNE”

MARKET SEGMENT -THE FINANCIAL MARKET

As we continue to grow ourselves in India, we proceed towards more development and learning development with the financial market.

• MONEY MARKET
• SECURITIES MARKET 

The term market means the conjunction point of demand and supply, the point where demand increases and the need for supply is required and the format of the market is formed.

Now coming to the market of finance specifically we further discuss with money market :

MONEY MARKET – MARKET SEGMENT

In the financial market, we deal with the money market that deals with short-term and long-term lending and borrowing of funds and also provide the longer transfer of funds using debt and equity(shares) systems.

They follow the activities of financial markets which are controlled by market participants, we can take the example of BANKS, FINANCIAL institutions (FI – be it foreign or Indian ), brokers, dealers, custodians( those who hold money and act as banks for financial institutions ), depository and depository participants ( mutual funds, insurance companies, and pension funds ) 

They generate large informed investors who provide funds in the market and provide liquidity(ability to generate free cash ) and stability (the demand for debt and liquidity controls ).

In the segment of the money market, it also plays an important role in the proper pricing of financial assets since it can source and accumulate relevant information for valuation.

Apart from the development of other markets such as the commodities market and foreign exchange market it also protects the producers, consumers, and businesses against willing price movements. ( now let us move towards another sector of the market )

SECURITIES MARKET -MARKET SEGMENT

Now the very first question that strikes our sentiment when it comes to financial markets is what is the security market? 

“A security market is a system of inter-transaction between all participants ( be it professional and non-professional ) which provides efficient capital by attracting new security( the buyer who buys the debt ) and transfers the asset into a financial asset.”

The main function of the securities market is to provide a strong and efficient cash flow of capital in the system. For example : [ if any household have some savings and can be deployed to fund requirement of the business enterprise ] 

It works in this way, the business issues securities and raises money from households from the regulated contract, eventually listing all the securities on the stock exchange to make sure that the security gets converted to liquidity( securities that can be sold easily and converted to cash at whenever required) 

Security represents the term of exchange of money between two parties, hence we know that securities are issued by companies, financial institutions, or the government and are purchased by investors who have money to invest ( after reading the relevant information of securities listed ).

The security ownership allows investors to convert their savings into financial assets which provides a return, that benefits both parties.

The securities market has two segments. :- 

• PRIMARY MARKET – The primary market is also known s the issue market where issuers raise capital by issuing securities to investors. for example { the IPO launch or the bond issue by RBI }.
• SECONDARY MARKET -This market is commonly known as the stock exchange, where transaction of trades occurs in already issued securities, and thus by meeting everyone’s expectations the risk in a security investment is transferred from one investor (seller). to another investor ( buyer).

SOME EXTRA MARKETS OF SECURITY ARE AS FOLLOWS: -( MARKET SEGMENT ) 

• COMMODITIES MARKET – In this market, the transaction of materials occurs between buyers and sellers (for example; metals, minerals, oils, and products of another industrial usage)
• FOREIGN EXCHANGE MARKET – Currents that generate different values in buying powers, the need for stealing goods and services from one currency to another for settling trades. for example [ USDINR AT CURRENT VALUATION it’s RUNNING ON 76.83 WHICH MEANS 1USD( BASE CURRENCY ) -GETS VALUED IN INR (QUOTE CURRENCY ) FOR Rs.76.83. 

The settlement of spot market trades happens with actual delivery and receipt of currency on the final settlement depending on the bias of the value date ( the value date is the second business date after the trade date i.e, T+2 day ) 

• INSURANCE MARKET – The life insurance segment was provided to private providers in 2001, and currently, there is one public sector insurance provider namely the Life Insurance Company, and 24 private issuers, more the awareness of insurance more protected the nation becomes.
• PENSION MARKET – India is an elderly growing densely populated country with a larger number of employment generated by the EPFO ( EMPLOYEE PROVIDENT FUND ORGANISATION ), which follows the NPS( NATIONAL PENSION SYSTEM ) rule, which is only applicable to government employees. 

We strongly regulate the function of the market in INDIA and since it’s a growing country it’s highly expected to become a developed country in the future by flexing the systems equal for all individuals.

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