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In: Finance

Discuss two general investment strategies by saving account and manage the fund and give the idea...

Discuss two general investment strategies by saving account and manage the fund and give the idea to support the answer. (300words)

Solutions

Expert Solution

There are several investment strategies by a savings account and the strategies to be selected by customers according to their risk appetite. For the management of funds, there are two types of investment lump sum and SIP ( systematic investment plan). The later one is chosen to manage the funds better as it is an annuity investment where after every regular interval of time mostly after month investments are done of a particular amount.

Investment can be done in financial instruments like Mutual Funds or MFs, GILT funds, Liquid funds.

Mutual funds are financial intermediaries, which are supervised by financial market professionals. These professionals are involved in the decision making of further investment of the pool of money accumulated by a fund house in financial market instruments like stock, bonds, hybrid ( both stock and bond), money market instrument. If an investor has less risk appetite then he should invest in MF-debt or hybrid MFs. If he has a high-risk appetite then he can invest in MF-equity or growth MFs. GILT funds are the mutual funds that invest in G-secs and generate a good return. They also follow indexation which is tax saving. So it is also a good alternative to MF-stock.

Liquid funds are the funds that are highly liquid and mostly invested in money market instruments which are short-term instruments. This can be encashed at any point in time as they are being invested in highly liquid assets. This is a good alternative to a savings account as they generate a higher return from the savings account.

For fund management, SIP (systematic investment plan) is better than lumpsum as SIP can be started with a small token of money and the advantage with SIP is that the market risk or the systematic risk reduces in comparison to lump sum.


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