Investment Options Kinds

 Investment options are called many names - assets, investment avenues, investment vehicles, so on and on.

Something you need to understand is that entire assets aren’t necessarily better investments or lower/higher risk than any other asset.

Basically, within an asset, you can have different levels of risk and return.

Further, even comparing different subcategories of assets (not from the same asset), the risk and return levels can vary when compared to each other.

This might seem confusing at first but you’ll understand it better as this course progresses.

Something many investors fail to understand is that an investment asset needs to be as restricted as many of us think it is.

There are many unconventional assets investors could explore investing in.

Some of the most common and widely accepted investment options are:

1) Deposit (FD, RD, post office deposit, etc). These are loved by us Indians and for good reason - for a long time, the returns provided by FD were relatively high.

In more recent times, FD rates have been relatively low. Many times, FD rates are barely higher than inflation and sometimes even lower than inflation.

2) Gold. In our Indian culture, gold holds a special place. Gold jewelry is passed through generations as a prized family asset.

However, from an investment perspective, gold jewelry is a poor choice. Gold biscuits or gold coins are more ideal.

Gold by itself has not given high returns but it is a good hedge. It is a store of value.

This is why many investment advisors recommend people to invest at least a small part in gold but not too much.

3) Real estate. This is another very popular investment option in India. During the 2000-2010 period, property rates skyrocketed through most of India leading many to think real estate is always a good investment.

In more recent times, it has proven to be a less favorable option.

Now, real estate does go up in places but it has also remained stagnant for years in many places.

Real estate investment also requires a large starting amount or requires investors to take a loan to invest.

4) Stocks: Only about 4% of India’s population invests in stocks. (Also known as shares, and equity investment.)

Basically, investors are owning a small portion of a company.

In India, many investors have a false perception of stock markets. About 15-20 years ago the stocks first caught on in India, many viewed it as a get-rich-quick scheme.

The problem with that is that while some can actually make a lot of money very fast, most investors do not. And of course, new investors almost always lose money making beginner mistakes.

Once such investors lost money, they promised to stay away from the stock market and also tried to warn others around them about staying away from the stock markets.

This has led to a rather negative image of stock markets in India.

The truth is if done well, reasonably good returns can be made from the stock markets - much better than what one would make by investing in FD or gold.

But these returns are still not astoundingly high like growing your money 10 times in 2 weeks or something like that.

A very reasonable rate of returns has been 12% per annum over the last 20 years.

Some better investors have made 4-6% more than that.

Another thing to realize is, you don’t have to actually buy stocks yourself to be investing in stocks.

If you’re investing in equity mutual funds, your money is being invested in stocks too.

It seems a bit odd but many investors don’t realize this until spelled out like this. Things are changing though.

More investors are getting into stocks via direct stocks investing as well as mutual funds.

And unlike before, many investors are doing it the right way this time instead of having unrealistic expectations that can damage investments.

5) Bonds. Very few people in India invest in bonds.

Bonds are essentially loans that you give out to companies or to the government.

When you buy a bond, you are essentially giving your money to an entity that is promising to pay you back the borrowed money along with the interest rate decided at the time of borrowing.

You can sell bonds to other people also. Basically, you bought a bond from company X (basically, gave a loan to company X). The company has said it’ll pay you back on a certain date.

You can sell this bond to someone else and when the date to return the money comes, the company will pay back to the bondholder - the person you sold your bond to.

Of course, this is oversimplifying it but this will give you a rough idea of how it works.

Needless to say, depending on the demand and supply of bonds in the market, the price of any given bond can go up or down.

Many investors are able to make higher returns (when compared to the rate promised in the bond) by simply selling the bond at favorable times.

The rate of interest varies from organization to organization. The ones that are more reliable are able to borrow (and therefore give you) a lower interest rate.

By this logic, the government (the safest organization in any country) offers the lowest rate of return (and also the lowest risk).

There is another way to invest in bonds - one that is more popular among retail investors.

Mutual funds that invest in bonds are called debt funds.

6) Crypto. Many have heard about this. There are many coins in circulation. Many are worthless while some have stood the test of time. This segment truly baffles even the most learned.

The number of people who have lost preposterous amounts of money in this space is also unbelievably high. But there’s no denying, there are those who have made money from this too.

As far as investment options go, this one is extremely risky and if you’re not sure about being able to handle the emotions that come along with investing in this space, a smart decision might be to simply stay away. Nobody truly understands it.

7) Business. This is an investment option that certain people in India swear by while a big section of the middle class stays away from it. Starting and investing in your own business is probably the only kind of investment where everything truly depends on how well you perform.

If you’ve done your calculations right, you could make a ton of money depending on what business you’re getting into. Some of the richest people on earth are own businesses.