What Is Inflation?

Inflation could be a subject of a lifetime understanding for an economist. Thankfully, I am not one hopefully you are not one too, so let me explain in simple words.

Inflation means a rise in price level. For examole a kilogram of sugar was $0.50 last year and now it is let us say is $0.55. Let us also assume that prices of all other commodities remained unchanged. This means that not only the price of sugar has gone up by 10%, the inflation in the economy was 10%.

We can also say that the value of the currency, the $ in this case, has gone down by 10%, for while $0.50 could by 1 kg of sugar last year, it can buy only.0.91 kg now.

We have understood what is inflation, now let's understand whether it is good or not.

A low level of inflation is belueved to be good for the country and its economy. Why? Because prices rise when demand is high, which in turn means that incomes of people has increased making them demand more. However if inflation is very high it is not good for the people as theit currency is depreciating rapidly and becoming worthless.

No or negative inflammation suggests lack of growth, which means low income, less number of jobs etc., and hence not good for the country.

Therefore all governments and central banks constantly struggle for maintaining inflation at low yet positive levels of one to five percent, thereby ensuring a healthy balance between growth and currency stability.

Would Now (August 2016) be a Good Time to Invest in an Index Fund?

For Investing in an Exchange Traded Fund ( ETF ) or a mutual fund, all times are equally good.In case the market is exceptionally low or bearish, you can increase the quantum of investment can be increased.
From a Value Investing perspective, now, August 2016, the valuations are high. About an year back as well as a short time ago the BSE SENSEX was around 24000, which as per earnings of select stocks, the conditions were favorable.I reapet once again that there is no point in waiting for a good time to invest in ETFs and mutual funds. So please start immediately.

Would Now (August 2016) be a Good Time to Invest in an Index Fund?

For Investing in an Exchange Traded Fund ( ETF ) or a mutual fund, all times are equally good.In case the market is exceptionally low or bearish, you can increase the quantum of investment can be increased.
From a Value Investing perspective, now, August 2016, the valuations are high. About an year back as well as a short time ago the BSE SENSEX was around 24000, which as per earnings of select stocks, the conditions were favorable.I reapet once again that there is no point in waiting for a good time to invest in ETFs and mutual funds. So please start immediately.

What is the Relationship Between a Bond's Market Price and Its Yield to Maturity?

Generally a bond is issued specifying a face value, a rate of interest and the date of maturity. If there are no financial markets and the bonds purchased only by retail investors, investors would not have any option but to hold the bond till the date of maturity and receive the face value on maturity. During the life of the bond the investor would have received interest at regular intervals. This realisation of interest on the face value, also purchased at face value amounts to 'Promised Yield to Maturity'.

Existence of vibrant and flourishing financial markets add colour to otherwise boring bond investing. Large financial institutions like banks, insurance companies and mutual funds need to constantly buy and sell various investments including bonds. This creates an unbalnced demand and supply resulting in prices above or below the face value.

For those who buy the bonds in the open market , the actual interest earned is different. Interest will be higher than normal if the bond is purchased at a price lower than face value and lower if the bond is purchased at a price more than the face value.

Besides the varying interest trade in bonds in the market also results in gain or loss on Capital Invested, depending on the price paid.

Thus the market price influences the actual interest earned or 'Yield' of the bond investment. A very interesting new dimension is also added, namely capital gain or loss, similar to shares,