In a recent interview for The Economic Times, Film star Alia Bhatt said that her favorite investment options were government bonds, fixed deposits and mutual funds, and that her flat in Juhu is the first property she purchased. These investment choices speak a lot about how a person is.
While Alia Bhatt would have her reasons to invest in mutual funds and bonds, you must be fully aware about what options are available with you for investments. There are various forms of investment available apart from FDs, Mutual funds etc.
Investments can be classified based on the risk associated with it because when you invest money, your money is at risk. Here's our reference guide to all the different kinds of investments and what they mean.
So, here are the major asset classes, in ascending order of risk, which you can consider while choosing your investment platform:
A bank cash deposit is the simplest, most easily understandable investment asset and the safest. Not only does it give investors good knowledge of the interest they'll earn, but it also guarantees they'll get their capital back.
Certificates of deposit are highly liquid instruments, very similar to cash that are instruments that typically provide higher interest rates than those in savings accounts. Hence, money is locked up for a while and there are abilities early withdrawal penalties included.
A bond is a debt instrument representing a loan made by an investor to a borrower. A typical bond will include either a corporation, where the borrower will matter a fixed interest rate to the lender in exchange for using their capital.
Bonds are commonplace in organizations that use them to finance operations, purchases, or other projects. Usually the interest rates define the bond rates. This is the reason there is a boom in the trade volumes whenever the banks raise the interest rates.
Shares or stocks let investors participate in the company’s success via increase in the stock’s price and through dividends. In case of liquidation of the company all the shareholders can claim the assets of the company, but they do not own any part of it.
Holders of common stock enjoy voting rights at shareholders’ meetings. Holders of preferred stock don’t have voting rights, but they do receive preference over common shareholders in terms of the dividend payments.
4. Mutual Funds
A mutual fund is a type of investment where more than one investor pools their money together to purchase securities. Mutual funds are managed by portfolio managers who allocate and distribute the investment into stocks, bonds, and other different form of securities.
Individuals may invest in mutual funds for as little as 10,000 per share, letting them diversify into as many as 100 different stocks contained within a given portfolio.
There are different mutual funds that are actively managed, meaning they are updated by portfolio managers who carefully track and adjust their allocations within the fund. However, these funds usually have greater costs such as annual management fees and front-end charges which can cut into an investor's returns.
5. Exchange-Traded Funds
Exchange-traded funds have become quite popular since their introduction back in the mid-1990s. ETFs are like mutual funds, but they trade throughout the day, on a stock exchange. In this way, they transparent the purchase-and-sell behavior of stocks. This also means their value can change during a trading day.
ETFs can track an underlying such as NIFTY. This can involve anything from emerging markets, individual business sectors such as biotechnology or agriculture, and more. Due to the ease of trading and wide coverage, ETFs are properly popular with investors.
A proper analysis of risk profile helps you take a decision about the type of investment you should plan. A certified investment advisor can guide you in selecting the right investment option based on your risk profile. There are various risk-free investment options available in the market. If you are against market risks, you can choose one from them. You should choose the one which suits your risk appetite.
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