Looking to invest? - Here are the different investment options
This article explains the different investment options for a naive investor, who is willing to invest their earnings wisely. Various options from cash to cryptocurrencies are discussed in detail to get a clear understanding of different investment types.
When you think about investing the first-ever question comes in the mind is 'what to invest in?'. It is true that saving money is easier than earning, but in my perception, it's rather easy to save money than investing them skillfully. There is a wide range of assets one can invest based on their age, risk appetite, financial goals, and income. If you are planning for a long-term then options like real estate, gold and stocks are good choices. Short-term investments are good if they are easy to liquefy e.g. cash and bank deposits. Cash on Hand
Cash is the basic form of money which is liquid and can be exchanged for any materials/goods, services or products. It is a well-known fact that cash is accepted by any common man or business, so it is easier to use cash for immediate payments. Considering safety, It is a good idea not to have surplus cash on hand more than needed for the near future needs.Bank Deposits
Depositing cash in the bank is almost the same as of the liquid cash, but the money deposited in the bank earns interest. Having a 'fixed deposit' will earn likely more interest than a usual savings account and it is always a good idea to do some research on differences between interest rates paid by various banks before creating a fixed deposit account. Even though bank deposits are liquid and near equivalent to cash on hand there are some limitations like minimum withdrawal limit, bulk withdrawal charges, account handling charges, etc it is important to get a better understanding of all these hidden charges while opening the bank account. Gold
Gold is perceived as one of the most important categories of all precious metals that exist in the earth. Being the oldest form of investment, it is also one of the important criteria to determine any given countries wealth. As there is only a definite quantity of gold in the earth and increasing demands makes it a good choice for investment. Especially in India gold can be exchanged for cash easily, it can be considered as a second currency. Buying gold in the form of jewelry is not always the wise option as it has making and wastage costs associated with it. If an investor wants to buy gold other than jewelry, he can opt for bullion gold. It is available in the market in the form of bars and coins which is the purest form of gold compared to gold jewels. Gold ETF's also another option to invest in golds. Shares
Equity shares are a type of investment that provides a certain degree of ownership in a public limited company in exchange for the money invested. Returns from this type of investment are primarily through dividends and capital appreciation. Dividends are a share of profits paid in return to the investor based on the invested capital. An increase in the value of a share depends on the organization's profits, revenue growth, goodwill, overall economic conditions and lots of other direct and indirect factors. Historically stock market investments provided a reasonable return like any other investment, but it is good to consult a specialist as the share investments are considered risky due to its volatile nature. To buy or sell shares from any stock exchange one should have a DEMAT account and each transaction involves various fees like brokerage, charges levied by the stock exchange, stamp duty and GST. Mutual Funds
These are collective funds where a fund house or an investment company manages the fund you invested. Based on the scheme opted your money invested in mutual funds will be distributed through a range of shares, bonds or debts. Unlike individual shares where you manage your investments mutual funds have a designated fund manager who manages your funds. Other than the fluctuating markets, returns on mutual funds rely also on the effectiveness of the fund manager to wisely manage the funds. Mutual funds are broadly classified into four categories which are equity, debt, bond and hybrid funds. Funds that are invested in equities are called equity mutual funds. Equity funds are further classified into small, mid or large-cap funds based on the market capitalization of the companies in which it is invested. Bond funds invest in government or institutional bonds with specified returns tagged to it. Balanced or hybrid funds invest the accumulated money both in bonds and equities. Hybrid funds provide a decent return in a mixed market condition. Real Estate
Real estate investment is another most common form of investment. Buying a real estate includes a plot of land, house or an apartment unit. As the name implies it is considered as a real asset one can enjoy living in the land purchased or rent out the plot or a house. As everyone needs a private place to 'call it a home' owing a house is a more natural part of any human's life. This type of investment is not limited to residential units or an empty plot of land as commercial properties like shops, factories, and warehouse establishments are also part of it. In general, returns from real estate investments are through rental or lease income. Increase in the actual value of the property is a potential return accounted under capital appreciation. Before buying any real estate, there are few important things one should always be mindful of. For instance, any property will have a market value and a guideline value based on whether it is a metro, urban or rural area. It is not essentially true that both values will be equal. Legally one should pay stamp duty based on the price of purchase of any property despite the guideline price. Guideline price is just an indication of the price range in the particular locality. Encumbrance checks need to be carried out before buying any piece of land or house as this ensures there are no legal problems associated with the current and previous owners of the property. Cryptocurrencies
Cryptocurrencies are new generation digital currencies that use blockchain technology to ledger each transaction. Like normal currencies, transaction details associated with the trade of cryptocurrencies are not stored in a single location that is recorded across the platform in various devices that make it unique and secure. But there are controversies associated with cryptocurrencies as there is no governing board that is involved in controlling price fluctuations this makes it difficult to use them as normal currency. Legendary investors complain this cannot be considered as a currency because of its unstable pricing and volatile nature. There are brokerage firms that are making heaps of money every day by facilitating cryptocurrency trade. The article Cryptocurrency and Blockchain Development - In a Nutshell , provides a more detailed view on the technology used and other aspects of cryptocurrencies. Investing in cryptocurrencies is a bit tricky as there is no DEMAT account involved and it is not listed in any stock exchanges. One should be very careful about investing in cryptocurrencies as it is more volatile. Those who closely follow the crypto markets and having more risk appetite can invest in cryptocurrencies keeping all the odds in mind.Conclusion
Investments like antique pieces of jewelry, automobiles, paintings can be classified as miscellaneous, and this category of investments mostly viable for wealthy people as this cannot be liquefied easily and the value of these investments is purely arbitrary. Aged liquors and Champagne are also considered as miscellaneous assets that can be sold for premium for occasions. There is no single best way to invest your hard-earned money but with a persistent effort, even someone with limited income and intelligence can achieve their financial goals.
The author has given the various options available for investing our surplus money so that it will grow and will not lose its value because of inflation. The value of the liquid cash with you diminishes as the rate of inflation is increasing. Today what you get for one rupee may not be available for the same value tomorrow. So keeping surplus cash in hand is never good.
A person who retires from a private company will not get a pension. So the money he saves can be invested in mutual funds and he will get some amount monthly as interest which may take care of his day to day expenses and he need not disturb the original amount. At the same time, he should not take the risk of investing in shares as the chances of losing money is also there in that method and there is no minimum guarantee there.
Purchasing gold is safer as these days we have quality certificates and KDM 916 so that there is no problem with cheating there. But purchasing gold and keeping that in the house is also not safe these days. So one should keep that in bank lockers or it should be insured. But I give preference to keeping in bank lockers.
Investing in real estate is good. But the problem of black money is there. They will register for a lesser value than what we paid them and showing account for that difference amount for the salaried people is very difficult. Another risk in this investment is deceiving the purchaser is more in this. There are many cases where there are double registrations and fake registrations are very high. So when we invest in this we should be very careful.
Another important point one should keep in mind is that all eggs should not be in the same basket. Don't invest all the money in one place and one instrument only. Keep in different instruments so that if there is a loss in one place there may be gain in another place.
One has to decide about the mode of investment based on his age, necessity, expected expenditures and tax liabilities. Some savings are tax exempted up to certain levels. So we can keep some money in those tax saving instruments so that we will pay less tax.