Investment means the allocation of funds with the objective to get large returns after a specified period of time. It basically means putting your money into the business or assets with the objective of fund generation in future. One should have a good knowledge of risk management, portfolio diversification, market conditions, and industry trends.
Investments can be further classified into three main types: equity, cash equivalents, and fixed income. Equity means ownership in the company through common stocks, mutual funds, or preferred shares. Cash or cash equivalents include certificates of deposit, savings accounts, and money-market accounts. Fixed-income investments include lending money to companies providing returns.
Types of Investment Options
Provided below are the 3 different types of investment options available in India:
Low-Risk Investments
Low-risk investments are investment options where no risk is involved, or minimal risk is involved. These are the best investment options for risk-averse investors. Following are some of the low-risk investments:
- Public Provident Fund (PPF)
- Fixed Deposit
- Sukanya Samridhi Yojana & many more
Medium Risk Investments
Medium-risk investments are slightly risky compared to low-risk investments. This investment type is for investors who want a balanced portfolio and can take some risk. Following are some of the medium-risk investments:
- Debt fund
- Government bonds
- Corporate bonds, & many more.
High-Risk Investments
High-risk investment options are all the investment avenues which are market-linked and come with greater risks. Such investment options get high returns as well, but they are volatile and uncertain in nature. Investors who can manage higher risk to earn better returns should only opt for such investment options. Following are some of the high-risk investment options:
- Stocks
- Mutual Funds
- Unit Linked Insurance Plans (ULIPs)
Different Types of Investments
Let’s check the different types of investment plans below:
- Unit Linked Insurance Plans (ULIPs)
- Endowment Plan
- Public Provident Fund (PPF)
- Mutual Funds
- Child Plan
- Retirement Plan
- Stocks
- Bonds
- Fixed Deposit
- National Pension Scheme (NPS)
- Post Office Savings Scheme
- Money Back Plan
Benefits of Different Investment Plans
Below are the benefits of different investment plans:
- Objective-Based Planning
The investment plans are designed in such a manner that helps meet specific events like retirement plans, purchasing a house, business plans, and children’s education. One can modify it to meet your objectives within the specified tenure with the help of a customised plan.
- Protection against Inflation
An investment plan helps you beat inflation. As we know, inflation can adversely affect the purchasing capacity over time, but if the right investment has been made, it will help your money to grow higher than the rate of inflation.
- Wealth Creation
Investing in wealth-creating assets, like bonds, stocks, mutual funds, etc., can be of great help as they will help you compound your money growth, significantly increasing your net worth.
- Tax Benefits
You can get tax benefits under sections 10(10d), 80C, & 80D of the Income Tax Act, 1961, with some investment plans like PPF, ULIPs, ELSS, SSY, tax saving FD and many more. With these investment options, you can save up toINR 1.5 lakh under Section 80C and up to INR 1 lakh under Section 80D of the Income Tax Act, 1961.
- Regular Income
Some investment plans, like dividend-paying bonds, reap a regular income.
- Expert Management
Get expert management advice on the market trends analysed andchoose the most suitable investment opportunities. This feature can greatly help laymen or those who have time to invest.
How should one start investing?
One should initiate an investment by following these steps:
- Goal Definition
Identify the main objective of investment, i.e., retirement purposes, down payment, etc., and the desired tenure for which the sum is to be invested.
- Research
Search for viable investment options available in the market that best suit your needs after considering their risks and returns. Also, you can research by reading some articles, watching videos, or meeting a financial consultant.
- Diversify
Initially, invest a small amount, and later on, bifurcate the investment across different assets such as bonds, stocks, real estate or a term plan to mitigate the risk.
- Review
Lastly, review your portfolio on a regular basis to get your investments aligned with goals and market conditions.
Factors for Choosing the Investment Plan
Mentioned are the factors to be considered for choosing the investment plans:
- Investment Goals
Identify the real motive of your investment, i.e. whether it is to meet a long-term or short-term obligation.
- Investment Horizon
It is of utmost importance to determine the investment tenure and check whether it aligns with your financial objectives or not.
- Risk Tolerance
Then, you should identify the acceptablerisk level depending on your age, investment objective, financial position, etc.
- Tax Considerations
Consider the taxation along with its rates depending on the type and duration of investment.
- Investment Cost
Consider the cost of investment, i.e. the fees and charges such as brokerage, exit fees, admin charges, etc.
Conclusion
Investing is important to build long-term wealth and achieve your financial goals. If you choose your investment options wisely and align them with your financial and life goals, you can manage your wealth along with the growth of money. Diversifying your investment to minimise the risk and build wealth and a secure financial future is always considered essential.
