The investment structure and decision is very dynamic but those who understand the basic principles and different types of assets and its economics to gain over the long run.
In order to work in this regard first step is to lean and distinguish between different classes of assets based on their Risks.
Understanding the Different classes based on their Risk Profiles
A Bank account or deposit is the simplest and easy to understand investment class with highest safety and least risk. It give guaranteed returns along with assurance of capital back at the end of investment. Fixed deposits are also associated with bank accounts and carries high returns than saving account but generally comes with a lock in period or penalty on prematurity withdrawals.
Bond is type of investment where investor gives a loan to borrower. Bonds can be of a company or can be issued by a govenment agency. They carry a fixed rate of interest that depends upon prevailing interest rates in the company.
The investor can invest in a public issue of a company to benefit from increase in stock price and by earning dividends. Investor can also buy stocks from Stock exchange. They can raise a claim in assets of company at the time of its liquidation but have no rights over assets. They enjoy right to vote at shareholder’s meetings.
Mutual fund is a investment wherein a group of investors pool their money together to purchase securities. They are managed by professional fund managers who allocate and invest further the pooled amount in stocks, bonds and other investments. An investment can be start with as low as Rs. 500/-.
Exchange Traded Fund (ETF)
ETFs have become very popular since there introduction. They are similar to Mutual funds but these are traded on stock exchanges throught the day unlike Mutual funds which are settled for all buy and sell transactions at the day end.
ETFs can track an underlying group of stocks which can include stocks, commodities and any sectoral indices. Popular ETFs are CPSE ETF and Bharat ETF.
Investors can also invest in Real Estate by buying Commercial or Residential properties. Alternatively investors can invest by buying shares in Real Estate Investment Trusts (REITs) where group of investors pool money to buy properties and share the profit. They trades on stock exchange like stocks.
Commodities are tangible assets such as Gold, Silver, Copper, Iron as well as agricultural products like Rice, Cotton, Jeera, Wheat etc.
Investors can buy currencies of different countries and trade them like stock to be benefited from there price gap like Dollar, Euro, Pound etc.