To reach your financial goals, resist inflation, and maintain financial security, you must invest. People invest their money for a variety of reasons, including higher education, tax reduction, financial independence after retirement, wealth accumulation, and numerous medical conditions. There are many different sorts of investments, and as a beginner, it might be difficult to figure out which one is best for you. However, understanding the various investment types will make it easier for you to select an investment plan.
- Fixed deposit (FD)
- Saving accounts
- Real estate
- Public provident fund (PPF)
- Mutual funds
- Senior citizen saving scheme (SCSS)
Stock is one of the best long-term investing options. It includes a high level of risk, but it also entails larger returns. When you buy stocks, shares, or ownership in a corporation, you become a shareholder. Stocks are available for purchase and sale at any time.
Stocks are divided into two categories: common and preferred shares. You will have some level of control of business meetings if you acquire common stock, but you will not have any voting rights if you buy preferred shares. The risk in common stocks is higher, but the returns are also larger, whereas the risk in preferred stocks is lower while the returns are lower. Preferred stockholders are given higher priority than common stockholders when a corporation goes bankrupt.
The stock market, on the other hand, is always changing. Before investing money, you should conduct thorough research into the return policies of individual companies as well as market conditions.
For a short period of time, a fixed deposit is a safe and secure investment. It doesn’t get affected by fluctuations in market conditions. There are guaranteed returns at regular periods of time. Inflation and liquidity risk, however, can become significant concerns. If you need money, you must incur a penalty if you break your FD before it matures.
A savings account is a deposit account with a bank that pays interest. Deposit savings accounts, money market accounts, and certificates of deposit are the three forms of savings accounts. A new category of ‘high yield saving account’ has been created, with interest rates 20-25 percent higher than traditional savings accounts. It has higher liquidity and no lock-in time. It includes a zero-balance account option for people who don’t wish to maintain the required minimum amount. However, there is a risk in investing in a savings account that interest rates might decrease.
Real estate investing means buying a house or property in order to generate money. Renting out a house, real REITs, REIGs, real estate limited partnerships, and real estate mutual funds are all viable options for real estate investment.
It is a substantial source of passive income generation. Real estate is immune to inflation and is seen as a hedge against inflation. However, you will have to pay for its upkeep. Because properties are difficult to buy and sell on a regular basis, they have low liquidity.
PPF is a popular and reliable long-term investment choice in India. For a tenor of 15 years, one can invest from 500 rupees to 1.5 lakh rupees with a fixed yearly interest rate. After the maturity period has passed, a full withdrawal is possible, but after 6 years, a partial withdrawal is also allowed.
There are three methods to invest in gold. Gold coins or ornaments can be purchased directly. Gold has high liquidity, but it is pricey because it must be stored properly in bank lockers and service charges must be paid.
The second option is gold exchange-traded funds (ETFs). Exchange Traded Funds, there are units that represent one gram of gold and can be purchased in either physical or electronic form. Its biggest advantage over gold coins/bars is that there are no maintenance charges or GST. You will receive cash if you redeem them.
The third option is to purchase a Sovereign gold bond. The Reserve Bank of India (RBI) introduced the sovereign gold bond plan in 2015 to lower gold demand. Gold bonds represent multiples of grams of gold. An individual can invest in bonds from at least 1 gram to at the most 4kg.
A mutual fund means an organization collects money from multiple investors and invests it in various assets like stocks, bonds. Via mutual funds, you can invest not only in equity but also in gold and real estate. Because there are so many investors in mutual funds, even if they only have a small amount to contribute, the fund receives a significant sum of money and invests in a variety of companies. Thus funds provide every individual investor with low-cost access to a diverse portfolio that is managed by experts at a low price.
Crash drag, a lack of liquidity, and a high expense ratio are all pitfalls of mutual funds. The fund’s securities may also lose value as a result of market fluctuations, and you may lose money. You must also be cautious of fraudsters.
The government launched SCSS for above 60 years of age groups to generate regular income. It is secure and convenient to use. This scheme is for a 5-year term and can only be extended once for another 3-year period. If you want to withdraw before the maturity date, you’ll have to pay a fine. A minimum deposit of 1000 can be made and a maximum deposit of 1.5 lakh can be made.
It is necessary to invest in order to achieve personal and financial goals. There are a number of traditional ways to invest, and new ones are emerging as a result of the risk in traditional methods involved. We need to know where we should invest our hard-earned money to make a profit. A high return is almost always accompanied by significant risk. You should determine your risk tolerance before investing.