Investing explained: Types of investments and how to get started

Recent data shows that the average assets under management (AUM) for the mutual fund industry in India increased by an impressive 9% during the 3-month period ending in September 2023. This surge in AUM demonstrates the growing interest in investing among the Indian populace. Investors should understand the different types of investment options and their functionalities to navigate this financial landscape effectively.

Understanding investments

Every first-time investor who asks the question, “What is an investment?” must understand the various types of investments in India. Investing encompasses a wide range of options, and understanding these options can help investors make more informed choices.

  1. Bank deposits offer low liquidity and moderate returns

Bank deposits are a safe and straightforward way to invest money but they offer low liquidity. Also, the returns on bank deposits are often moderate. These investments are suitable for those who prioritise safety and accessibility.

  1. Different mutual fund types cater to varying investment objectives

Mutual funds are pooled investment vehicles. Mutual Funds offer various investment options like equity funds, debt funds, hybrid funds, and more. Each mutual fund type is geared towards achieving a different investment objective. Investors should know all about the various mutual fund investment options to build a diversified mutual fund portfolio.

  1. Investors can invest in real estate by renting out or selling their property

Real estate is a tangible asset class that has historically been a favourite choice for investment. Investors can buy properties and choose to generate income by renting them out or selling them at a later date, potentially reaping capital appreciation. However, do note that real estate investments typically require significant upfront capital and may have liquidity constraints.

  1. Investors can choose direct equity investment

Investing in stocks directly provides the potential for high returns. However, it also carries higher risk and requires an in-depth understanding of the stock market. Direct equity investment can be volatile, and the value of one’s investment may fluctuate.

  1. Customers can invest in the National Pension Scheme

The government-sponsored retirement savings program offers tax benefits and the potential for long-term growth. NPS helps investors choose between equity and debt, providing flexibility to cater to their risk appetite and retirement goals.

  1. Investors can also invest in RBI bonds

The Reserve Bank of India (RBI) issues bonds that are considered as safe investments. These bonds offer fixed interest rates and typically have a longer tenure, making them suitable for conservative investors looking for stability and income generation. Understanding the different types of investments and their associated risks and returns is the first step towards making informed investment decisions. The choice of investment should align with investor’s financial goals, risk tolerance, and time horizon.

The recent surge in mutual fund AUM in India highlights the growing interest in investing, but it also underscores the importance of knowledge and informed decision-making. Investors must take their time to explore their investment options, assess their goals, and seek professional advice if needed.

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