Everyone wants to invest the money in order to get a return. Various persons have various financial targets or goals in their life. To achieve those goals or to meet those targets they need money. Big goals require big money. There are various options where people invest their money to get back a good return. Every option is dependent on the risk factor. Major risk gives bigger returns. In this post, we will discuss the various investment options where people invest their money based on their risk appetite.
What is Investment?
Investment is defined as the action or process of investing money for profit or return. In this process, the money is committed or a property is acquired for future income. In terms of economics, Investment is the creation of capitals and goods which is capable of further creating goods or services.
Types of Investments
All investments are categorized into two types:-
- Fixed Income Investments, and
- Variable Income Investments
Fixed Income Investments are the investments where some fixed amount of income is guaranteed at the time of investing the money. Examples of fixed income investments are Fixed Deposits (FDs), Recurring Deposits (RDs), Public Provident Fund (PPF), National Savings Certificate (NSC), Bonds, Treasury Bills etc. In India, a fixed annual return of 7-9% is availed on the investment varying from scheme to scheme. These schemes are also termed as defensive investments.
Variable Income Investments are the types of investments in which there is no any guarantee of a fixed return at the time of investing the money. The annual return on invested money may vary from 0-50%. There are various investment schemes fall in this category like holding the shares of a company (equity investment), investing into real estate etc. These investment schemes are termed as growth investments.
Where do People Invest the Money
There are various options where people invest their money. Some most popular investment destinations are listed below:-
- Direct Equity Investment: People buys the shares of a company as an investment option. A buyer buys the equity shares directly or through an authorized agent. There various types of investments in the shares. Each of this type of investment requires a good knowledge of the stock market and the investor should have a risk appetite. People get returns from equity investments based on the performance of the company. (Read: Share Market Basics for beginners in India | How to Invest in share market in India)
- Mutual Funds: Mutual Funds are the instruments to invest the money in various sectors. It is an indirect investment method. A money invested in the mutual fund is further invested in equity or debts. This further investment is done by the fund manager of the mutual fund company. There are two types of options in mutual funds- Lump-Sum investment and Systematic Investment Plan (SIP). Mutual funds give an annual return in the range of 7-30%. The return from a mutual fund is directly proportional to the risk. (Read: Mutual Funds in India: What and How to Invest)
- Bonds: A bond is a fixed income investment instrument. It is created for the raising the capital. The issuer of a bond is obligated to pay a fixed amount on investment in a fixed period of time. There are two types of bonds- Government Bonds and the Corporate Bonds. The annual interest rates on bonds in India is somewhere between 6-9%.
- National Pension System (NPS): This scheme is managed by the Pension Fund Regulatory and Development Authority (PFRDA) and it is aimed at long-term retirement investment plan. In this scheme, investors have to deposit a lump-sum amount annually. A minimum annual contribution of Rs 1000/- is required to be active in the scheme. It has an annual return 9-11% depending on the chosen scheme.
- Public Provident Fund (PPF): This is also a tax-free investment scheme as NPS. It has a locking period 15 years and minimum annual contribution Rs 500/-. Currently, PPF has 8% of annual interest rate.
- Fixed Deposit (FD)/Recurring Deposit (RD): People invest their money in banks in form of fixed deposits and recurring deposits. In a fixed deposit, a fixed amount is deposited for a fixed time period. In recurring deposit, a fixed amount is deposited on monthly basis for a fixed time period. FDs and RDs have an annual return between 6-8.5% depending on the duration. This rate also varies from bank to bank. The similar types of investment schemes are available in Post Offices also.
- Gold: As per a survey by CRISIL, the highest amount of investment in India is in form of gold. People buy gold in form of jewelry or coin and hold it for a very very long time. This is considered to be the safest instrument of investment. There is Sovereign Gold Bonds also available for investment in India which was launched by Govt. of India in November 2015.
- Real Estate: This is the most favorable investment option of capitalists. People having a large amount of money invest it in the real estate. This may be in form of a house, or flat, or land. When the location of property develops, the cost of the property also grows in multiples.
Disclaimer: This post is an educational blog only and it never gives any investment advice to its readers.
