When it comes to investment a lot of questions might pop up in your mind. An investor should not get confused between savings and investment. While saving is considered as a remote method of accumulating money, investment can help you make your money grow. Well, everyone wants to invest in options where they can get maximum returns within a fixed period of time with minimum risk involved. However, it’s hard to find such investment plans with integration of low risk and high returns. In reality, generally risks and returns are directly proportional to each other. Which means, higher the risk involved, higher will be the returns. But it is always a good idea to invest your money somewhere rather than just saving it. So let’s just take a look at the types of investments.
TYPES OF INVESTMENTS:
Before starting to invest your money, one should be aware about the various types of investments plans. The most important factors you might consider while investing your money are the risk factor involved and the returns on investment(ROI). Accordingly, investments are of three types.
- LOW-RISK INVESTMENTS:
These are the investment options that provide guaranteed returns despite the inflation rate or other economic changes. Bonds, Fixed Deposits(FDs), Employees Provident Fund(EPF), Public Provident Funds(PPF) are some of the investment options in this category.
- MEDIUM-RISK INVESTMENTS:
These are the investment plans that involve a certain amount of risk but also pay high returns. Debt funds and index funds come under this category. These are the market-linked investment options and are exposed to the unpredictability of the market, but it’s ROI generated is high. It’s better suited for investors who have a long-term investment goal and are willing to take a little risk.
- HIGH-RISK INVESTMENTS:
These are the investment plans where the ROI is very high, but the risk involved is also higher. Equity mutual funds and stocks come under this category. These types of investment plans are better suited for the investors who are willing to take high risk and want to gain a high ROI over a very long period of time.
So keeping in mind the risk-factor, ROI, and the time period for which you want to invest, you can choose the investment plans that are best suited for you. So let’s take a look are the various investment plans available.
- BONDS: A bond is a loan to a company or the government that pays back a fixed rate of return. The borrowing organization promises to pay the bond back at an agreed upon rate to the bondholder. These are a type of fixed-income investments. The bondholder receives interest payments first and the principal amount when the bond matures. These are low risk investments and they offer guaranteed returns.
- FDs and RDs: Investing in FDs gives financial stability and lets you earn a surplus ROI. The FD interest rates generally range from 6.5-7% per annum. The range of tenures vary fromminimum7 days to maximum 10 years. They are not linked with the market fluctuations and are a safe investment tool. In recurring deposits (RDs), one has to invest a small fixed sum regularly with the bank and receives the round off amount with interest at the end of the tenure. This can be a short-term investment.
- PUBLIC PROVIDENT FUND(PPF): This can be a secured long-term investment option. It’s tax-free. A PPF account can be opened in a bank or a post-office. The money here is invested for a period of 15 years and also the tenure can be extended. Currently the interest rate of a PPF account is 7.6%.
- EMPLOYEES PROVIDENT FUND(EPF): EPF is a popular savings scheme that is introduced by the EPFO under the supervision of Government of India. The fund is built by the contribution of the employees and the employer. Both of them contribute 12% each of employees monthly salary as their share of contribution towards EPF.
- POST-OFFICE TERM DEPOSITS(POTD): In POTDs the rate of return is fixed by the government every quarter and it’s tenure varies from 1-5 years. It’s a safe investment tool for a shorter time-period.
- NATIONAL PENSION SCHEME: It is a government-backed investment option that provides pension solutions. The scheme matures when the investor turns 60. The interest accumulated is tax-free and it gives you financial stability when you retire.
- SENIOR CITIZENS SAVINGS SCHEME: It’s an investment option for the senior citizens as it provides a regular income to them. The tenure of the scheme is 5 years and can also be extended. It provides an interest rate of 7.4% per annum.
- PRADHAN MANTRI VAYA VANDANA YOJNA(PMVVY): PMVVY is a scheme attainable for the senior citizens of 60 years of age. This also gives a return of 7.4% per annum. It provides regular pension for senior citizens. The minimum amount of pension is Rs.1000.
- MUTUAL FUNDS: It is an ideal investment option for investors who want to invest their money for a longer period of time. The risk factor involved here is high as it is market-linked and is affected by the fluctuations of market rates. Two major types of mutual funds are equity mutual funds and debt mutual funds. As the risk factor involved is high, it yields ROI.
- REAL ESTATE INVESTMENT: It involves buying, selling and rental, properties for earning profit. The location of the property is an important factor in determining the value of your asset. It earns returns in two ways- capital appreciation and rentals.
- GOLD BONDS: These are RBI authorised certificates issued against grams of gold. It has a fixed tenure of 8 years however you can withdraw your investment after 5 years. It is a long-term investment with a lower risk factor.
- RBI BONDS: These are taxable bonds and generally have a tenure of 7 years. They pay an interest rate of 7.75% per annum. They are furnished in demat mode only.
- STOCKS: Stock ownership implies that the shareholder has a proportionate claim on the assets of the company. These are market-linked and involve a high risk factor as it totally depends on the fluctuation of market rates. Once you buy the shares of accompany you can trade them in a marketplace called stock market. It’s best suited for the investors who have a good knowledge of market rates.
- GOLD ETFs: Gold Exchange Traded Funds are an integration of both gold investments and stock. It can be easily bought and sold with any company stock. It can also be used as a security for secured loans.
There are ample ways of investing your money, but make sure you start investing once you save a little. The earlier you start, the higher will be the returns. So it’s better to invest in long-term investment plans in your early 20s or 30s if you want a higher ROI. Also, it’s a good time to invest in high-risk investment plans. All you have to do is start somewhere. It’s always a better option, to make your money work for you, rather than just keeping it safe. If you are looking to just grow your wealth, you can go for low-risk investment plans or if you are willing to take risk you can go for high-risk investment plans and aim for a high ROI. It’s never too late or never too early to start investing, once you accumulate some savings, you go try your hands on investment.