7 Types of Investment Options

Money management has been a grave issue since currencies were introduced. People have always wondered where to keep their money. As when someone  keeps their money at some place, they need to be sure of a lot of things, of the safety risks involved, of the return on investment that they will get and of the place where their money is kept. 

 

If we look at the situation about 10 years ago, we should know that there were not many ways to invest money. But as time changed, investment types increased. 

 

In this blog, we are going to have a look at the types of investments. But before we move ahead, let us look at what is an investment.

 

Also Read | What is Investment Analysis? Types and Advantages

 

What is an Investment?

 

The process of obtaining an asset with the goal of making money from it is known as investment. Regular income or asset appreciation can both be used to generate income from an asset. The growth in the asset's value over time is known as appreciation.

 

When an asset is purchased for investment purposes, the investor does not intend to use it. Instead, the investor will put it to good use in order to make money. The primary goal of investing is to purchase an asset today and sell it at a greater price later.’’

 

There are different types of investments available for people to invest their money in.

 

Let us move ahead and look at the types of investments.

 

Types of investments

 

The main types of Investments are:

 

1. Fixed Deposits

 

Banks and financial organisations frequently provide fixed deposits, also known as FDs. FDs are the most popular investment form in India since they provide assured returns. 

 

They might be hired for anywhere from seven days to ten years. The interest rates on fixed deposits range from 3% to 7%. Senior citizens are also given a higher rate of interest on their FD assets. 

 

The interest rate on a savings account is lower than the interest rate on a fixed deposit. Interest is paid monthly, quarterly, half-yearly, annually, or at maturity, according to the investor's preference.

 

2. Bonds

 

Bonds are fixed-income products that pay investors a fixed rate of interest in exchange for their money. Investors lend money to the government and corporations in exchange for regular interest payments. Borrowers who raise money publicly or privately for various projects are known as bond issuers. 

 

A bond is a financial instrument that contains information about the interest rate, the due date, the maturity date, and the terms of the bond. Bondholders are paid the full amount when the bond matures (upon maturity). Investors can potentially earn by selling the bond before it matures on the secondary market at a higher price.

 

Also Read | 4 Types of Bonds

 

Bonds are thought to be a low-risk investment. However, there are some hazards associated with them. The default risk is the most common. Bond issuers are subject to interest and principal repayment defaults. Investors, on the other hand, can assess the bond's risk before investing. 

 

They can do so by looking at the bond's credit rating. Bonds with a better credit rating are less likely than those with a lower credit rating to default on payments. The safest bonds are those with a AAA rating. Bonds assist investors diversify their investment risk by including them in their portfolio.

 

3. Stocks

 

A stock investment is referred to as an equity investment. Purchasing stocks or shares entitles investors to a portion of the company's ownership. Stocks are purchased with the goal of generating regular income in the form of dividends as well as capital appreciation. Investors can profit from selling shares as stock prices climb.

 

Stock returns are market-dependent, making them the riskiest investing option. Market demand and supply, as well as market attitudes, influence share prices. A positive sentiment will result in an unexpected market rise, while a pessimistic sentiment will result in a share price decrease.

 

Must Read | Introduction to Stock Market Analysis

 

Investing in the stock market should be done over a long period of time. The market will fluctuate in the short term, which could result in unanticipated losses. When it comes to investing in stocks, patience is required.

 

Investors must have a demat and trading account in order to trade in stocks. The shares will be held in a demat account, while the buying and sale of shares will be done through a trading account. Short-term capital gains on stock investments (less than one year) are taxed at 15%. Long-term capital gains, on the other hand, are taxable at 10% if they exceed INR 1,00,000 per year.

 

4. Index funds 

 

An index fund is a form of mutual fund that, rather than paying a manager to pick and choose investments, passively tracks an index. An S&P 500 index fund, for example, will try to replicate the index's performance by holding stock in the firms that make up the index.

 

Also Read | Difference between Saving and Investing

 

Index funds have the advantage of being less expensive because they do not have an active manager on staff. The risk associated with an index fund is determined by the fund's investments. 

 

Investors receive dividends or interest from index funds. When the benchmark indexes they monitor rise in value, these funds may rise in value as well; investors can then sell their shares in the fund for a profit. Index funds have expense ratios as well, but as previously stated, these expenses are typically lower than mutual fund fees.

 

5. ETFs (exchange-traded funds) 

 

ETFs are a sort of index fund that monitor and attempt to replicate the performance of a benchmark index. They are less expensive than mutual funds since they are not actively managed, similar to index funds.

 

The primary distinction between index funds and exchange-traded funds (ETFs) is how ETFs are purchased: They trade like stocks on an exchange, which means you can buy and sell ETFs at any time, and the price of an ETF will fluctuate throughout the day. Mutual funds and index funds, on the other hand, are only priced once a day at the conclusion of each trading day, and that price remains constant regardless of when you buy or sell. 

 

As with a mutual fund or an index fund, your goal as an investor is to see the fund's value rise so you can sell it for a profit. Investors may receive dividends and interest from ETFs.

 

6. Mutual Funds

 

You're not alone if picking and choosing individual bonds and equities isn't your cup of tea. In fact, there's an investment specifically intended for you: the mutual fund.

 

Investors can buy a large number of investments in a single transaction using mutual funds. These funds aggregate money from a number of participants and hire a professional manager to invest it in stocks, bonds, and other assets.

 

A mutual fund may invest in a specific sort of stock or bond, such as international stocks or government bonds, according to its strategy. Some mutual funds own both stocks and bonds. The riskiness of a mutual fund is determined by the investments made within it.

 

When a mutual fund makes money, it distributes a portion of it to investors, such as through stock dividends or bond interest. When the value of the fund's investments rises, the fund's value rises as well, allowing you to sell it for a profit. When you invest in a mutual fund, you'll have to pay an annual fee called an expense ratio.

 

7. Certificates of Deposit (CDs)

 

When a mutual fund makes money, it distributes a portion of it to investors, such as through stock dividends or bond interest. When the value of the fund's investments rises, the fund's value rises as well, allowing you to sell it for a profit. When you invest in a mutual fund, you'll have to pay an annual fee called an expense ratio.

 

Conclusion

 

There are numerous investment options available. Some are suitable for novices, while others need a higher level of expertise. Each sort of investment has a particular risk and reward profile. Before deciding on an asset allocation that meets their objectives, investors should think about each sort of investment.