Question

Based on your calculations and on all you have learned this week, how would you choose to save your $2,000? Consider things such as rate of return, inflation, taxes, liquidity, safety, restrictions, and fees, and explain the rationale for your decision. Respond in at least 50 words

Answer 1

1.

Online Savings Accounts- guarantee your investment will not lose any money while at the same time generating a little bit of a return.The online high yield savings accounts are a great fit for that goal.

In using a savings account for short term investing you’ll get:

• Guarantee to never lose principal on your investment as long as you keep your total deposit at the bank below FDIC coverage of $250,000.
• A small, risk-free return on your investment.However, online savings accounts do offer a risk-free return you will never have to lose sleep over.
• High liquidity. Most of the high quality online banks allow 6 withdrawals per month from savings accounts. In other words, you can generally cash out your funds at any time without much hassle or expense involved.

In using savings account for short term investing you’ll miss out on:

• Potential higher returns from other types of investments. Since online savings accounts aren’t offering the best interest rates right now, you could potentially do better by putting your money elsewhere. However, that would require more risk, too, which is something you’ll want to avoid when it comes to short-term investing.

Unfortunately banks don’t offer those investments. They mostly keep your money safe. If you want a high return investment you’ll have to take the risk of also losing money.

2.  

Mutual Fund

A mutual fund is a financial instrument which draws money from a plethora of investors. This common fund is created with mutual contribution of multiple investors in a variety of assets and securities including debts, equities, government securities, liquid assets like funds, bonds, and others.

• Tax relief- Paying tax is a huge burden and keeping this under consideration certain mutual fund schemes are specially designed to offer tax benefits to the investors. For example, investments made in the equity-linked saving schemes or ELSS are eligible for tax deduction benefits.
• FEES :- The fees of mutual funds are categorised into two different classes namely the annual operating fees and the shareholder fees. The operating fees of annual funds generally range between 1-3% and are levied as an annual percentage of the funds which are under management. On the other hand, the shareholder fees are charged in the form of redemption fees and commissions and are directly paid by the investors while buying or selling their funds.
• Quick purchase and sale option-This liquidity of mutual funds allows the investors to purchase and redeem their fund units whenever they want to.
• Inflation-People investing in mutual funds need to be careful about inflation as the performance of a fund is vulnerable to the rate of inflation.
• Best return- Mutual fund schemes are specially designed to help the investors get maximum return on their investment. Investors can diversify their investment in medium to long-term plans and get the expected return keeping the risk factor within a manageable range.