One can invest in various financial instruments, securities, and schemes to make money. These investments can help build a strong portfolio and earn attractive returns over time. However, one must choose the right financial assets based on their investment objectives and risk tolerance. It can happen when you are familiar with the different types of investments available in financial markets. Read on to understand the different types of investments.
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Types of Investment
One can find different types of investors based on their choices in terms of financial instruments or schemes. Here are the various types of investments available:
Investing in Stocks
Stocks or equities are popular investment options in different markets. Stocks are ownership stakes in public companies. When you purchase stocks of a company, you get a part of the total ownership. You might get voting rights by purchasing stocks. One can find stocks of public companies on stock exchanges. Stocks are considered more liquid than other financial instruments, as they are traded on a daily basis.
Certificate of Deposit
CDs (Certificates of Deposit) are low-risk investment options that can help you earn a steady income. You can acquire a CD from a reputed financial institution. It involves giving a bank a lumpsum amount and earning interest on the principal. The bank will provide interest at regular intervals while repaying the principal after a predetermined tenure. The higher the repayment tenure, the higher the interest. Since the investor will receive interest at regular intervals, the risk is lower with Certificates of Deposit.
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Bonds
One cannot ignore bonds when discussing different types of investments. Bonds represent loans to a corporate or a government entity. While corporate entities and central government bodies issue bonds, local government bodies rely on municipal bonds. When you lend money to an entity through a bond, you receive regular interest payments. Also, a bond comes with a predetermined maturity date. You will receive the principal back when a bond matures. The return on bonds might be less than other instruments, but they are low-risk investment options.
Investing in Real Estate
Real estate has been the preferred investment for many. You can purchase a residential or commercial property and wait for capital appreciation. You can sell it for a higher price to make a profit in the future. Not to forget, you can obtain rental income through a commercial or residential property as well. Mortgages, CRE (Commercial Real Estate) loans, and other finance options are available for investors to purchase a piece of property.
Fixed Deposits
Fixed Deposits (FDs) are popular investment choices, especially in a country like India. You deposit a lump sum amount in a bank or NBFC through a fixed deposit. The lump sum amount is deposited throughout the predetermined tenure. Once the tenure of the fixed deposit is over, you get the deposited amount. Also, investors receive compound interest along with the principal deposit made over the years. Since FDs provide better interest rates than regular savings accounts, they are preferred by many investors.
Mutual Funds
Mutual funds are collective investment schemes popular among all types of investors. A mutual fund is a diversified portfolio consisting of stocks, commodities and other instruments. You can also find mutual fund schemes with only a single asset class, say stocks. You can invest in the diversified portfolio of a mutual fund by purchasing its units. SIP investment options are also available for mutual fund investors. You can invest a fixed amount in a mutual fund scheme at regular intervals through a SIP (Systematic Investment Plan).
Public Provident Fund
PPF (Public Provident Fund) is a long-term investment scheme backed by the government in India. It is a savings platform for citizens in India. You can open an account with a post office or a bank in India to get started. PPF contributions start from a minimal Rs. 100 in some banks. Investors can deposit anywhere between Rs. 500 to Rs. 1.5 lakh per annum in PPF. Contributions in PPF are locked in for 15 years. However, partial withdrawals and loan facilities are also available for PPF investors.
National Pension System
The National Pension System (NPS) is another long-term investment scheme offered by the government of India. Contributions made to NPS are further invested in stocks, government/corporate bonds, and Alternative Investment Funds (AIFs). You can choose the auto option for predetermined asset allocation. You can also select your asset classes through the active option. Investors make regular contributions to NPS accounts and enjoy substantial returns on retirement. You can annuitise your NPS investments after reaching the age of 60.
Unit Linked Insurance Plans
Unit Linked Insurance Plans (ULIPs) are investments with tax benefits in India. They combine investments and insurance to provide additional benefits. A part of the premium is used to provide a life cover to the investor, while the other part is invested in market-linked instruments/funds. Investors bear administrative, premium allocation, and other charges while investing in ULIPs.
National Savings Certificate
National Savings Certificate (NSC) is an investment scheme extended by the India Post. Investors make small to medium contributions to NSC for five years. It is preferred by conservative investors in India preferring fewer risks. NSC comes with predetermined interest rates, which are revised every quarter. The Ministry of Finance in India is responsible for revising the interest rates every quarter.
Conclusion
One must be familiar with investment and types of investment. Different financial instruments can help earn substantial returns or build a source of steady income. Investors can explore stocks, bonds, mutual funds, and other instruments/schemes. Begin your investment journey by exploring the options and consider demat account opening for efficient management of your investment portfolio across different asset classes.
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