Warren Buffet - " Investing is simple but not easy "
What buffet said might sound irrational so lets understand it by a simple example
- Imagine this situation: You're on a mission to acquire something special—a house, a car, a toy, or maybe even the highly-coveted PS5. To make it a reality, you diligently save up your hard-earned money over several months. As you continue on your path, you reach a point where you've accumulated a decent sum, although it's still not enough to make the purchase.
Just when you're feeling proud of your progress, your friends extend an exciting invitation—an extravagant party at a high-end club. Now you face a decision: do you let go of your savings and give in to the allure of indulgence, or do you stay strong, resisting the temptation and staying focused on your goal?
This example pretty much explains the whole scenario.
Investing is easy as the only thing we need to do is stay disciplined and follow our path but it is difficult as we humans cannot sacrifice the pleasure easily
Basic Investing Terms
1.Annuity - It is a series of payment you receive at regular intervals ( monthly, quarterly, annually depending upon the investment you made)
- Annuity can be classified into 2 types
i] Immediate annuity - When you receive a one one time lump sum of money
ii] Deferred annuity - When you receive payments at a regular intervals of time
- Insurance company paying you money{that you invested} after retirement is one of the example of annuity
2.Assets - Asset is something that has monetary value and can be converted into money
- Based on how easily an asset can be converted into money it is divided into 2 types :
i] Liquid - Assets which can be easily converted into money without much loss of its value
example- gold , stocks , mutual fund
ii]Illiquid - Assets which cannot be easily converted into money
example- Real Estate , Life Insurance
- Based on the value of asset it can again be divided into 2 types
i] Appreciating Asset - Assets that have potential to increase in
value over time
example- gold , stocks
ii] Depreciating assets - Depreciating assets are the investment
tend to decrease in value over time
example- car , house
3.Bulls and Bears - These terms are usually used when we are referring to stock market.
Bull market indicates a phase where market keep rising and most of the investors tend to buy in this phase.
Bear market is the exact opposite, shar prices keep falling over a period of time
4.Capital Gain - The money you invested in purchasing an asset is called "Capital"
- The profit you make by selling the asset is known as "Capital Gain"
- while calculating capital gain / loss it is important to take
other expenses (like brokerage , commission , transportation)
in account.
5.Captial Gain Tax - Tax charged on the profit you earn is usually called capital gain tax
-Based on how long you hold on asset before selling it the tax levied can be
i] Short Term Capital Gain tax or STCG tax
| Type of Asset | Period of holding | Tax Rate |
|---|---|---|
| All capital assets | more than 3 years | profit is added to your income and then the tax is deducted |
| Immovable property (land) | more than 2 years | profit is added to your income and then tax is deducted |
| Shares and Equity | more than 1 year | 15% on profit |
ii] Long Term Capital gain tax or LTCG tax
| Type of Asset | Period of holding | Tax Rate |
|---|---|---|
| All capital assets | more than 3 years | 20% |
| Immovable property (land) | more than 2 years | 20% |
| Shares and Equity | more than 1 year | 10% on profit made on 1 lakh |
| Taxable Income | Tax Rate |
|---|---|
| upto 2,50,000 | NIL |
| Rs. 2,50,001 to Rs 5,00,000 | 5% |
| Rs 5,00,001 to Rs 7,50,000 | 10% |
| Rs 7,50,001 to Rs 10,00,000 | 15% |
| Rs 10,00,001 to Rs 12,50,000 | 20% |
| Rs 12,50,001 to Rs 15,00,000 | 25% |
| Above 15,00,000 | 30% |
For individuals above the age of 60 years
| Taxable income | Tax rate |
|---|---|
| upto 2,50,000 | NIL |
| Rs. 2,50,001 to Rs 3,00,000 | 5% |
| Rs 3,00,001 to Rs 5,00,000 | 5% |
| Rs 5,00,001 to Rs 7,50,000 | 1% |
| Rs 7,50,001 to Rs 10,00,000 | 15% |
| Rs 10,00,001 to Rs 12,50,000 | 20% |
| Rs 12,50,001 to Rs 15,00,000 | 25% |
| Above 15,00,000 | 30% |
| Taxable income | Tax rate |
|---|---|
| upto 2,50,000 | NIL |
| Rs. 2,50,001 to Rs 5,00,000 | 5% |
| Rs 5,00,001 to Rs 7,50,000 | 10% |
| Rs 7,50,001 to Rs 10,00,000 | 15% |
| Rs 10,00,001 to Rs 12,50,000 | 20% |
| Rs 12,50,001 to Rs 15,00,000 | 25% |
| Above 15,00,000 | 30% |
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