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What Are the Different Types of Investment Available to Investors?

Investing your money as soon as you start earning is always a good idea. The earlier you invest, the faster may be the chance for the power of compounding to make your money grow. You might want to purchase your dream home so that you and your family can live comfortably. Or you might want to set aside a certain amount every year to fund your travel to exotic European destinations. You want to ensure that your children receive the best possible education, and at the end of it all, you also desire to lead a comfortable retired life after your regular salary or other source of income stops. Every one of these is a worthy objective, and to make some of them or even all of them feasible, adopting a consistent and disciplined approach to investing is most likely to get you there.

A disciplined and well-carved-out investment strategy can help you build wealth over the long term. You can reach your financial goals through awareness, patience, and consistency while investing.

Various investment avenues are available in India to help you achieve your financial goals. This article lists the types of investments that you can consider making in your journey towards wealth building.

Types of Investments in India

There is no dearth of investment options in India. All types of investment have distinct characteristics, and depending on their financial goals and risk appetite, investors can make their selections accordingly. Typically investments may broadly fall under two categories – those that provide growth or capital appreciation, referred to as growth-oriented investments, and those that can provide a relatively steady stream of income, generally fixed-income investments.

Stocks:

Equities or stocks are a well-known form of growth-oriented investment. Buying a company's stock means that you get an ownership stake in the company depending on the number of shares you have purchased. These shares have the potential to appreciate over a long period, thereby bolstering the growth of your initial capital. You could also benefit from a potential steady flow of income in the form of dividends.

Mutual Funds:

In mutual funds, money is pooled from a slew of investors, and the fund manager then invests this into a variety of asset classes, such as debt, equity, gold, and hybrid schemes, which is a combination of these asset classes. Each mutual fund house offers a plethora of schemes, and investors can select the ones that best cater to their investment requirements. In mutual funds, too, investors can select the growth option or the Income Distribution cum Capital Withdrawal (IDCW) plans.

Bonds:

If you are interested in investing in debt, bonds are an option you can consider. When you buy the bonds of a company or a government entity, it means you are lending money to that company or government entity. Bondholders are offered a fixed rate of interest, which could be quarterly, semi-annual, or annual.

Fixed Deposits:

Bank fixed deposits tend to be popular with investors, particularly risk-averse investors. There are a variety of tenures that investors can choose from, and the rate of interest offered accordingly is likely to vary. Any kind of market fluctuation does not influence this interest.

Real Estate:

Investors can consider putting their money in either residential or commercial properties if they wish to generate returns from real estate. But it must be noted that timing can matter in real estate and real estate investments are not as liquid as other investments. For instance, it is not easy to sell a property when you urgently need funds; buying and selling real estate takes time.

Retirement Planning:

To keep the money coming in during the retirement years, investors have the option to put their money in investment avenues such as Public Provident Funds, National Pension System, Senior Citizens Savings Scheme, and so on.

Why should you invest in Mutual Funds?

Depending on their financial goals and risk appetite, investors can put their money in various types of mutual funds. Investors who are willing to take on some risk can consider putting in equity mutual funds, which are likely to provide better returns over the long term. Conservative or relatively risk-averse investors can consider debt funds. The taxation rules are not the same for all mutual funds; gains on equity mutual funds and debt mutual funds are taxed differently.

Regarding equity schemes, you can consider a host of options such as large-cap/mid-cap/small-cap funds, sectoral funds, Equity Linked Saving Scheme (ELSS), multi-cap funds, and so on. For instance, if you decide to go in for equity mutual funds that invest in large-cap and mid-cap stocks, the Nippon India Vision Fund is a scheme you can consider.

Regarding debt funds, you could opt from choices such as liquid funds, money market funds, short/medium/long duration funds, dynamic bond funds, gilt funds, floater funds, and so on. If you choose to invest in a debt mutual fund that invests in Government securities debt instruments for Long duration, then the Nippon India Nivesh Lakshya Fund is a scheme you could choose.

Who can invest?

While anyone can invest in mutual funds, it can particularly be a good option for investors who are starting on their investment journey or for those who are not keen on doing hardcore research themselves and would rather rely on the expertise of the fund manager. Since fund managers operate mutual fund schemes, they are the ones who decide which securities to buy and sell for the scheme to deliver the best possible returns. In this way, investors can hope to make profits on their investments by banking on the experience and expertise of the fund manager.

Benefits of investing in mutual funds

Mutual funds can also provide the benefit of diversification as far as an investor's overall investment portfolio is concerned. Not all investments outperform or underperform at the same time. Hence, when a portfolio is diversified, if one asset class is not performing as expected, the loss from that investment can be offset by another asset class that is likely doing well. Similarly, within a mutual fund scheme itself, the idea of diversification can work. For instance, if an investor has invested in an equity mutual fund, the fund manager of that scheme would have invested in a variety of stocks. Despite the best intentions and experience of the manager, not all stocks may necessarily do well, but the idea is that the outperforming stocks more than make up for those that are underperforming so that the scheme generates profits on an overall basis.

In terms of accessibility, units of mutual fund schemes are easy to buy – you can either purchase the units online directly from the mutual fund house of your choice or through other distribution channels such as brokerage firms, registrars such as Karvy and CAMS, agents and banks, and so on. Similarly, most mutual funds are highly liquid, so redeeming units is also an easy and smooth process even when you require funds during an emergency.

Since mutual fund houses release the Net Asset Value (NAV) of their slew of schemes everyday, it can become easier for investors to keep track of their investments to ensure that these schemes are delivering on the objectives outlined at the time of investment.

Modes of investment

If you choose to invest in mutual funds, you can either invest a lumpsum amount or choose the Systematic Investment Plan (SIP) route. Through SIP, you can consider investing small amounts either monthly, quarterly, or annual depending upon your convenience and funds at your disposal. You can use Nippon India Mutual Fund's SIP Calculator to determine the amount you need to invest for your SIP plan.

To conclude…

All investment types have pros and cons, but what works for one type of investor might not work for another. In other words, the process of investing varies across investors depending upon their financial goals, which should ideally align with their risk appetite. It would make sense to research each investment option before you decide on the ones you wish to include in your investment portfolio. Also, periodic rebalancing of your portfolio becomes important so that you are abreast of the performance of your investments and can make necessary changes if required.

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Disclaimer:
This is an investor education and awareness initiative by Nippon India Mutual Fund.
Helpful information for investors: All Mutual Fund investors have to go through a one-time KYC (know your Customer) process. Investors should deal only with registered mutual funds, to be verified on SEBI website under 'Intermediaries/ Market Infrastructure Institutions'. For redressal of your complaints, you may please visit www.scores.gov.in . For more info on KYC, change in various details & redressal of complaints, visit mf.nipponindiaim.com/investoreducation/what-to-know-when-investing This is an investor education and awareness initiative by Nippon India Mutual Fund.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document. Language Disclaimer:
While utmost care has been taken in translating the article into respective regional language(s), in case of any confusion or difference of opinion, article available in English language should be deemed as final. The article provided herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional advice for the readers. The document has been prepared on the basis of publicly available data/ information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of loss of profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this article. "ABOVE ILLUSTRATIONS ARE ONLY FOR UNDERSTANDING, IT IS NOT DIRECTLY OR INDIRECTLY RELATED TO THE PERFORMANCE OF ANY SCHEME OF NIMF. THE VIEWS EXPRESSED HEREIN CONSTITUTE ONLY THE OPINIONS AND DO NOT CONSTITUTE ANY GUIDELINES OR RECOMMENDATION ON ANY COURSE OF ACTION TO BE FOLLOWED BY THE READER. THIS INFORMATION IS MEANT FOR GENERAL READING PURPOSES ONLY AND IS NOT MEANT TO SERVE AS A PROFESSIONAL GUIDE FOR THE READERS."

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