Being Invested is the best gift you can give to yourself and your loved ones because we can’t deny that life works on money and we all need it. But money cannot grow when kept under the bed or in a jar, you need to put it in action so that money earns you more money.
There are varied options available to park your money and reap the returns from it. Let’s have a look at them.
Stocks/Equity: Also known as shares is the most popular way to invest. Again, investing in shares can be a risky affair as small or younger companies have high risk and the probability of big companies going bust is also there. As for the market fluctuation due a current events, e.g. Covid 19, is a short term hindrance and if you plan to stay invested long term, don’t let your confidence dwindle with the fall and if you want to start investing, this is the best time to get shares at a lower price.
Mutual Funds (MF): Mutual Fund combines a group of companies in the same sector, or same risk factor giving you a diversified portfolio. So, if you are eyeing at certain Banking stocks, go for MF’s in Banking sector. The best part about MF’s is that you have a qualified Fund Manager who is looking after the MF portfolio. This is the best option to invest for people who wish to invest in equity but don’t understand the market much. The term one should know in MF is the NAV which is the per-unit market value of all the securities held by the MF scheme.
First let’s see how you can invest in MF’s
Systematic Investment Planning (SIP): In this method, you invest a pre agreed fixed amount every month. This allows you to get more units when the fund’s NAV is low.
Out Right: You can decide on the amount you want to invest in a MF and pay it upfront. E.g., you decide to invest 50,000 INR in a prticular MF, so you pay it outright and sit back and see the MF perform.
After deciding how you want to invest, you need to decide how you want to remain invested in that MF; with Growth Option; where the dividend that you earned is reinvested in the MF again, hence increasing the value of amount invested or with Dividend Option where the dividend is paid out and the amount invested remains unchanged.
Public Provident Fund: This is one product liked by all because its Tax Free and because of its long tenure of 15 years, the impact of compounding interest rate is huge mainly in the last year. Also, it’s backed by the Sovereign, making it a safe investment option. Note: The Government reviews the interest rate of PPF on a regular interval.
Bank Fixed Deposit (FD): Parking money in Bank FD’s can be the safest bet and is more preferred by senior citizens and retired investors. You can invest for the period you prefer and earn interest monthly, quarterly, half-yearly, yearly or cumulative interest by the end of the FD tenure which is taxed as per one’s income slab. However, investment in Bank FD’s qualify for Section 80C tax benefit when locked in for 5 years, making it attractive for salaried people who want to reduce their taxable amount.
Real Estate: The house that one lives is for self-consumption and hence can not be termed as an investment. But if you get a second property where you don’t intend to live, it can be considered as your investment. Real Estate can get you income in two ways; value appreciation and rental income. So, one of main factor to consider when investing in a property is the location, which determines its value. If you plan to invest in real estate, be it residential or commercial on a loan, you can negate the EMI amount to be paid with the rental income received.
Debt Instruments: Investment in debt instruments can be made in various ways. There are Government Bonds, Corporate Bonds and Debt Mutual Funds. Investing is bond means, giving a chunk of your money to the bank or a corporate and they pay you interest in return. Bonds issued by the Government are considered safer compared to Corporate bond as there may a probability of the company going bankrupt. Hence, corporates pay a higher rate of interest vis-a-vi Government bonds.
Gold: Apart from buying gold in the physical form, there are many other ways for you to own it. You can invest in Gold ETF (Exchange Traded Fund), Gold as a commodity or Sovereign Gold Bonds, which are issued by the Government at a regular interval. Initially gold was seen as an hedge against inflation but now has paved its way in to the investor’s portfolio as paper gold.
Commodity: Just like gold, you can buy and trade in bullion, metals, energy, oil, oil seeds, energy, cereals and spices. Commodity market works similar to equity markets with little differences. Its regulated by SEBI and just like equity trading, requires you to have demat and a trading account. Trading in commodities can be a little complex and requires clear understanding before one start’s investing.
Some of the investment options mentioned above have fixed income while others are linked to their market performance. However, both these investment types help you in your wealth creation. Market based can be riskier but at the same time will give you high returns and fixed income-based instruments will protect your principal amount as you earn interest on it. For the long-term perspective, both these investment types should be a part of one’s portfolio.
In my next blog I will be talking about Compound Interest- The power of compounding and the Rule of 72. So stay tuned and I hope my blogs help you understand the financial markets in a better and simpler way.
This blog is a part of Blogchatter’s A2Z #blogchatterA2Z challenge.
9 replies on “Various Investing Options”
You have broken it down into such simple terms and all in one blog. While I have invested in some of these, I did not have idea on others. Waiting for your upcoming blogs to learn more…
Oh that’s nice. Hopefully my further blogs will help you in understanding finance and investments better.
Simple and informative!
Thanks a lot
I knew about these options but your explanation is pretty easy to follow of anyone who is new to these terms. Knowing where to invest is the first step.
Mostly people get confused between equity and mutual funds. You post gives clarity on this. Also debt investment is a unique investing idea
Yeah we have a diversified portfolio and have invested in varied instruments with the right risk. Should be useful for many
Early investment in life is a must and with so many options available we can choose the safe that gives long-term benefits as well. We do invest in mutual funds every month
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