A New List - Profit Booking, Investments, Mutual Funds et al

I've often used the word profit booking as being one of the reasons for the plumetting sensex over the past few days. So let's understand what that means first.

Profit booking means encashing or realising the profit or gain in a share by selling it - can be done by individuals or brokers or corporations.

Let's look at an example to understand.
If you buy a stock at about 100, which rises to 350 within two months. Then a week goes by and it only accounts to 355 or 360. Although it has risen in the past week, what's clear is that there is a slow-down. If you sell the stock now, you stand to take a profit from it - this is profit booking.

We now look at a few provisions which facilitate funding.

Investment is the choice by an individual to risk his savings with the hope of gain - in terms of a future return or interest from a deposit in the bank or a purchase made.

Private Equity consists of equity securities in operating companies which are not traded publicly on a stock exchange. A leveraged buyout, venture capital and growth capital are all categories of private equity investments.

Mutual Fund is a collective investment scheme which is professionally managed and pools in money from many different investors, and in turn invests the pooled money in stocks, bonds and other securities.

Hedge Funds is a private investment fund which is open to a limited range of investors and also permitted to undertake more activities than other investment funds. Hedge funds look to offset potential losses by 'hedging' (minimise exposure to risk) their investments using methods like 'short selling' (where you sell shares you don't own and repurchase, hoping to profit from a decline in the price).

Short selling can be best described by this pic I found on Wikipedia.

The opposite of this is 'going long', where a share is purchased with the expectation that its price will rise.