Investments mean the money you put in bank scrips.
There are three ways by which you can invest in a bank. Direct and Indirect routes.
- Direct: Subscribing to the Initial Public Offer when a bank offers its share for sale in the open or primary market.
- Indirect investment can be either through
- buying the shares in the Secondary or Share market.
- investing in the mutual funds which in turn invest the funds so collected in acquiring the shares of the banks from the share market.
Precautions to be taken before investing your hard cash in a Bank , are.
- Look to the past track record and its market share
- Any stake is held by the Government
- Frequency and amount of Dividend paid
- Level of Impaired assets:especially Nonperforming Assets
- Whether business and profit-making are consistently growing
- Last but not least, the level of Corporate Governance.
The above six points are the key indicators of the soundness of a Bank. You can consider other aspects like the Level of Fraudulent transactions, the Bad debts, value of money in Impersonal accounts like Sundry Creditors, etc. to make a more meaningful and realistic assessment.
But, even the new banks with the advantage of technology and efficient management can beat the old gurus of the trade. So you cannot ignore their worth to your investment.
Caution: Rewards are attractive in a Risky investment while the contrary occurs in Safe portfolio.
Share Market maxim: Buy low Sell High.
When the share price is low, Buy that share.
When the price is high, sell that share.
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