What Are The Different Types Of Investments?
A famous Latin proverb says, “Do not commit all to one boat”.
Per experts, this ideology also works well for investors. Investment gurus recommend investment portfolio diversification for more than one reason.
But the first step to achieve that is to be aware of the different instruments of investment in India and their fundamental characteristics.
Only once you manage to find out such details, you can determine which among them matches your portfolio or your investment intent the most.
People invest for various reasons, and each person’s goals may differ. Some invest to save for retirement, aiming to build a nest egg that will sustain them during their golden years. Others invest to grow their wealth, taking advantage of opportunities to generate substantial returns over time. Additionally, investing can be a means to generate regular income or protect assets from inflation.
It is essential to recognize that investing is not a get-rich-quick scheme. While it has the potential for significant financial gains, there is always the risk of losing money. It is crucial to approach investing with a long-term perspective and a willingness to weather market fluctuations.
So, without further ado, let’s check the popular types of investment options in India.
3. Mutual Funds
4. Future Options
5. Invoice Financing
6. Initial Coin Offering and Cryptocurrencies
7. Saving Schemes
8. Insurance and Annuities
9. Real Estate
10. Unit Linked Insurance Plan
Take Your Pick From the Top Investment Options in India
Based on your risk profile and financial goals, you can park your money in any of these investment vehicles –
These represent company ownership. So, when you invest in shares, you buy a portion of the company ownership. Investing in company stocks is considered exceedingly volatile as both risk and reward levels depend on several factors, including the economy, the company’s performance, and market movement.
Corporate or government bonds are popular means of investment in India for conservative individuals. Usually, they come with a fixed maturity period and generate interest income. The coupon/interest rate can be either fixed or variable, depending on the type of bond. When you compare bonds to stocks, you will find the former to be more stable. But these subject investors to credit and interest risk.
3. Mutual Funds
If you have limited funds to spare but would still like to diversify your portfolio, mutual funds are an ideal choice. These funds are created by pooling money from different investors and allocating them across various asset classes per the intended portfolio composition. Equity mutual funds, debt funds, hybrid funds, and solution-oriented funds are a few examples.
4. Future & Options
Note that futures come with a right and obligation to buy or sell underlying stocks and other assets at a pre-set price and within a predetermined time. On the other hand, options denote a right where traders don’t have an obligation to buy or sell indexes during the contract. Both derivative products provide ample scope for generating returns and also help hedge current investments.
5. Invoice Financing
If mainstream investments do not catch your fancy, you can try alternative types of investment options in India, like invoice financing. It is one of the most popular choices in that regard. Via such options, investors purchase company invoices for a short term, say 30-90 days. Invoice discounting or factoring helps investors diversify their portfolios significantly and fetch high returns ranging from 12% to 20%. If you are looking for a short-term investment option, check out fintech companies like KredX that feature such invoices for financing.
6. Initial Coin Offerings And Cryptocurrencies
Cryptocurrencies and ICO are virtual or digital assets gaining momentum in the market rapidly. They are characterized by high risk-reward quotients and, hence, require investors to research thoroughly before deciding. Note that to participate in an ICO, you will need Bitcoin or Ethereum.
7. Saving Schemes
Risk-averse and conservative investors also have multiple options for investment in India. Options like fixed deposits, recurring deposits, National Savings Scheme, Public Provident Fund, etc., are popular among investors. Usually, such schemes generate income at a pre-fixed rate and come with a maturity period. You may be required to meet additional criteria depending on the type of savings scheme you choose.
8. Insurance And Annuities
Annuities serve as a contract between an investor and an insurance company. It states that the insurance company will provide investors with period payment either immediately or in the near future. You can invest in annuities either in a lump sum or through a series of payments known as premiums. The most common types of annuities include – fixed, variable, and hybrid annuities.
9. Real Estate
Investing in real estate involves purchasing properties with the intention of generating income or capital appreciation. Real estate offers various investment avenues, including residential properties, commercial properties, rental properties, and real estate investment trusts (REITs). Real estate investments can provide regular rental income, tax advantages, and the potential for long-term value appreciation.
10. Unit Linked Insurance Plan (ULIP)
Unit Linked Insurance Plans (ULIPs) are investment-cum-insurance products that offer both life insurance coverage and investment opportunities. A portion of the premium paid towards a ULIP is allocated to life insurance, while the remaining amount is invested in various asset classes such as stocks, bonds, or mutual funds. ULIPs provide life insurance protection along with the potential for capital appreciation.
Today, you can find multiple instruments of investment in India. However, before choosing any particular option, you may want to weigh factors like risk-taking capability, investment goal(s) and period. Similarly, don’t forget to account for market performances and trends to develop suitable investment strategies. You can also gauge investment instruments’ performance with statistical measures.
1. How do I get started with investing?
A: To get started with investing, assess your financial goals, risk tolerance, and investment horizon. Educate yourself about different investment options and consider consulting with a financial advisor.
2. Are stocks riskier than bonds?
A: Yes, stocks are generally considered riskier than bonds due to their volatility and potential for higher returns. Bonds offer more stability and predictable income. To make informed investment decisions, it’s crucial to regularly monitor live stock data, which provides real-time information about a company’s performance and market trends.
3. Can I lose money by investing in real estate?
A: Yes, investing in real estate carries risks, such as property value depreciation and rental income fluctuations. However, with proper research and due diligence, real estate can be a rewarding investment.
4. What are the tax benefits of investing in a Mutual Fund?
A: Mutual funds offer tax benefits such as exemptions on long-term capital gains and dividends. However, the tax implications may vary based on the investor’s country of residence and the type of mutual fund.
5. How does the lock-in period work for the PPF?
A: The lock-in period for the Public Provident Fund (PPF) is 15 years. During this period, the invested amount cannot be withdrawn fully. However, partial withdrawals and loans against the PPF account are allowed under certain conditions.