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Investment is the process of investing in various financial instruments in the hope of earning a good profit or return in the future. It basically involves keeping money into an financial categories for the purpose of making money or increasing the investment. There are two ways (i.e. Portfolio allocation and portfolio diversification) an investor can minimize risk and maximize profit from investing.
Investing in the stock market is a zero profit. If you are considering investing in stocks of a company that represents a shareholding in the company as a general shareholder. As a shareholder, you expect the company to grow and perform better, your share will be valuable. Investment in stock market is becoming increasingly accessible and beginners able to open demat accounts with small investments through a broker’s terminal. The shares are ready for a long-term investment. You should manage your investment actively as various economic and business factors influence stocks. Also, you need to understand that recovery is not guaranteed and be willing to take the associated risk.
You should spread your stock portfolio by buying stocks from various sectors and industries. It is a process in which you invest a fixed amount of money in the stocks of your choice on a continuous basis. Investment at various market levels allows you to average out your stock purchase costs over time.
Primary market deals with the issuance and offer for sale(OFS) of securities by the issuer directly to the investor. Investor buy securities which are fresh issue, not traded before. Here investor get securities directly from the company through IPO’S. It is very easy to apply for an IPO with your bank account through a process known as Application Supported by Blocked Amount (ASBA).
Secondary Market investor purchase securities from other investor those who are willing to sell them. The key products available in a secondary market Equity shares, bonds, preference shares, treasury bills, debentures, etc.
Large-cap (or Large-capitalization) is the term that is used to designate companies with top Market Capitalization. These companies are some of the top brands in our country with well-established and have a significant market share. Reliance Industries and TATAMOTORS are examples of large-cap companies that are listed on the stock exchange.
Mid-cap companies are primarily focus in the mid-sized Market Capitalization companies of India. As these companies are in the middle of their growth curve, which are expected to grow and increase profits and market share.
Small-cap companies are the companies that have small-sized Market Capitalization. Small-cap funds can perform exceptionally well during an optimistic market phase and are more volatile and riskier.
Stock sector have different units such as Bank/ Pharmaceutical and Health Care/ petrochemical/ Jems and Jewellery/ Software& IT Service/financial Sevices/ FMCG, etc.
| Sector | Market Cap | Growth % ( 1 year) |
| Diamond Jewellery | 281.303 | 117.23% |
| Health Care | 1341.426 | 69.32% |
| Insurance | 464.422 | 29.12% |
| Software& IT Service | 3751.566 | 204.83% |
| Oil & Gas | 2175.512 | 65.30% |
| Manufacturing | 44.142 | 131.57% |
One of the most popular and lucrative alternatives investment in India is mutual funds. The objective of investing in mutual fund determine the scheme’s goal and investing rationale. It includes long-term capital gains, monthly income or smooth and steady return. Investors should always be aware of the mutual fund’s objective in its prospectus to ensure that it is in line with their investment objectives. They should also use it to identify similar schemes and performance evaluations.
Mutual funds are ideal for investors who do not have a lot of money, or for those who do not have the knowledge or time to do market research, but want to grow their wealth. In return, the fund house charges a small fee for their activities as an investment vehicle which is subtracted from the investment.
Every types of fund has different risks, features and rewards.
Equity or Growth fund: If your aim is to wealth creation or capital appreciation over the medium term to long term. Investing in these mutual funds mainly concentrates on equity and offers higher returns to investors in the long-term at average risk. Growth funds can be further categorized into various schemes.
Example:
Large-cap mutual funds is a pooled investment that invests primarily in the top Market Capitalization companies of India and these companies are some of the top brands in our country. These schemes predominantly invest in large-cap stocks. Large amounts provide stable and sustainable returns than mid-cap and small-cap over a period of time.
Mutual Fund equity scheme that focuses on middle-sized Market Capitalization companies of India. These funds are schemes that invest majorly in stocks of mid-cap companies. Mid-cap stocks usually tend to offer investors high growth potential than large-cap stocks and are less volatile and risk than small-cap stocks.
Small-cap mutual funds are schemes that invest majorly in stocks of mid-cap companies, which have higher risks but can produce higher returns. These funds focus on small-sized Market Capitalization companies of India.
These funds invest in stocks across all market currencies and their portfolio consists of a combination of large-cap, mid-cap, and small-cap. They are no less risky compared to the middle cap or small purse and This fund is suitable for non-aggressive investors because it is less risky compared to the mid-cap or small-cap.
Here, investment is done for a particular sector such as ‘Health care’. It is possible if the sector is expected to perform well over time, profits are likely to be high. But investing in these funds are can be riskier than other mutual funds.
Here, investment is based on a particular theme such as ‘Green Energy. The thematic funds are one of the most risky categories of mutual funds because if for any reason it does not play out, the risk of loss will be very high.
Tax Saving Fund has the potentiality to earn higher than PPF or Tax Saving Fixed Deposit but it doesn’t guarantee a fixed return.
Debt Funds provide investment security as well as regular income for investors. Debt funds can be further categorized into various schemes like bonds, debts, government securities, and commercial papers. Risk and Return are lower in Debt Funds as compared to Growth Funds.
There are different debt funds that invest in debt securities with specific Durations, for specific goals or for a specific risk profile. Like low duration funds,overnight funds, medium duration funds, long duration funds, liquid funds, ultra-short duration funds, money market funds, dynamic bond funds, etc.
Read Also: What is Debt Mutual Fund? Types and Invest.
Example:
Bond also known as fixed income instruments – are generally used by governments or companies to lift money by borrowing from investors for specific projects, and in return, bond issuer promises to pay back the investment, with interest. Comparatively, it is a safe investment for investors as market volatility doesn’t affect so much in bonds. It has some risks also such as the prepayment risk,interest rate risk, credit risk, reinvestment risk, and liquidity risk, etc.
Commercial paper is one type of debt instrument issued by a corporate house that matures less than one year.
A Hybrid Fund is the combination of equity shares and Debt instruments which provide both capital appreciation and regular income respectively. The risk, as well as rate of return, is moderate for Hybrid Funds, although the potential for high returns is high.
Money Market Instruments are simply the instruments or tools which instruments serve a dual purpose of allowing borrowers to meet their short-term requirements and provide easy liquidity to lenders. Money Market Instruments(MMI) include Treasury Bills, Repurchase Agreements, Banker’s Acceptance, and Certificate of Deposits, etc.
Example:
Treasury Bill is an integral part of the money market where it is a Debt obligation of the Government issued at a discount to the face value with maturities of less than one year. It is a short-term obligation of the Government.
Certificate of Deposits (CDs) is also relatively liquid, which functions as a deposit receipt for money deposited with a bank. They carry low risk and offer interest rates that are higher than those provided by Treasury bills and term deposits.
Bonds are debt instruments issued by corporates or government entities for a predefined duration. Bonds, known as fixed income instruments that can provide investors returns as high as 9 – 10% per annum or more. The objective of investing in bond determine the scheme’s goal and investing rationale that is available for capital growth, earning a regular income, tax-saving options, and tax-free income, etc.
Moreover, you get the additional benefits of medium to low risk (for AAA to A Bonds) options available in this investment segment. Debt Mutual Funds (DMF) are an indirect way of investing in Bonds.
Zero-Coupon Bond: This bond is purchased at a discount price and does not pay any periodic interest rates. Invested money does not offer a regular interest rate till the bond gets mature. When the bond matures annual returns on the principal amount including the gain amount are paid to the investor.
Government Securities Bond (G-Sec) When Central or State governments face a liquidity crisis, then for the purpose of infrastructure development than the government issues this bond. It is a debt instrument.
Just like a bank deposits, Investors who buy corporate bonds lend money to reputed corporate enterprises or companies. In return, the companies make a legal commitment to pay interest on the principal that they have borrowed.
Convertible Bond is a fixed-income debt instruments that yields interest payments, and allows the purchaser a right or an obligation to convert the bond of issuing company into shares but only during the tenure of a bond.
Inflation-Linked Bonds, the primary object of this bond are to protect investors irrespective of the level of inflation in the economy. Its main objective is to provide safeguard to the investor against macroeconomic risks.
Sovereign Gold Bonds (SGBs) are the perfect alternative investments like holding physical gold. These bonds, issued by the Reserve bank of India(RBI) on behalf of the Government of India, reduce several risks associated with physical gold. Investment includes long term capital gain and also earns steady interest.
RBI Bonds Government of India launched the Floating Rate Savings Bonds, 2020 (Taxable) scheme on July 01, 2020 to enable Resident Indians/HUF to invest in a taxable bond, and it has no monetary ceiling. These Bonds include low-risk returns and a longer maturity period.
Real estate is a wonderful investment option for people with a lot of disposable cash as it is a great opportunity for long-term capital appreciation. Real estate offers protection from inflation, and often low connections to stocks and bonds. Real estate offers higher returns in well-managed, High-quality properties with low leverage than any corporate debt. It is an effective way to the diversification of risk into many investment portfolios.
The demand for real estate in retail space has risen to unprecedented levels due to rapid development and urbanization. The repayment limits have been reduced due to the availability of affordable loans with low-interest rates. Some of the investment options mentioned above offer guaranteed benefits, while others are connected to the financial markets. A well-balanced portfolio of consistent and connected market options can help you accumulate wealth and financial independence over time.
RBI Bonds Government of India launched the Floating Rate Savings Bonds, 2020 (Taxable) scheme on July 01, 2020 to enable Resident Indians/HUF to invest in a taxable bond, and it has no monetary ceiling. This Bonds include low-risk returns and a longer maturity period.
In the year 2014 India approved creation of REIT ( real estate investment trust). The aim of REITs is to secure every individual investor’s benefit of owning an interest and the fastest and easy liquidation of investment in real estate market. REITs tend to pay higher dividends and investors who do not need regular income can re-invest those dividends to grow their investment.
Mainly two types of REITS
Equity REITS
Equity REITS mainly possess or handle income producing properties – such as office buildings, shopping mall etc
Mortgage REITS
Mortgage REITS mainly investments in purchased or originated mortgages securities and these assets earn income from the paid interest and provide liquidity in the real estate market.
Investment in real estate properties is expensive and illiquid in nature which provides a passive income source of capital gain. It mostly required patience and time. Investing in real estate-related stocks is best suited for investors who want to be a part of the top branded realtor, who are expertise in this field. It reduces the burden of workload on properties.
Read Also: ICICI Prudential Strategic Metal and Energy Equity Fund of Fund – Overview, Analysis, Key Points.
Disclaimer
All the information are used for education purpose only. Investing in financial intruments poses a risk of financial losses. Investors must therefore exercise due caution. InvestoAxis is not liable or responsible for any losses caused as a result of decisions based on the article.
