Investment is the money that is spent in hope of financial benefits in future. An investment is the act of creating or buying assets with expectation that the same would generate interest earnings, capital appreciation, return, or dividend which is profitable as against the money put in at first. Thus, while savings is a passive form of accumulating wealth, investments on the other hand grow wealth and build up money than what was invested originally.
Importance of Investments
The aim of investing money or asset is to ensure the money grows by investing in various financial avenues. You can minimize impact of taxes by investing in tax-saving investment tools. If you make intelligent and relevant investments for long-term or short-term, you can achieve distant financial goals.
Types of Investments in India
There are several investment tools you can try out in India.
- Stock: Equity or stock are shares by companies that are purchased by the general public. Companies can raise funds through stocks. A stock gives the customer ownership in the organization. Returns on stock are usually more than any other financial instrument. But it also carries maximum risk. In turn of money, the shareholders are issued stock certificates. There are basically two types of stocks: preferred stocks and common stocks.
- Bonds: A bond is issued by an issuer to a lender. It is used by private and public sector companies to raise sums of money that any financial institution is incapable of lending. These come under fixed income securities, as the interest earned on bonds can be calculated for the time for which they were held. These are issued in the public market and then borrowing entity is bought by the lender for specific amount of monetary compensation. A bond is inversely proportional to returns and known to carry a low-risk attribute and low return investment.
- Mutual Funds: A mutual fund allows you to invest money in behalf of an investor. Via mutual funds, you can invest in different securities. Some of the examples are stock funds, balance funds, open-ended funds, and more. Every fund has certain percentage allocation in variety of securities.
- Real Estate: Investing in property is said to bring substantial returns based on the appreciation of the real estate property. However, just like gold, the valuation of real estate property is based in the current time and market conditions. It is rare that a property you have invested in would depreciate in value, until there are any legal or other issues, disasters affecting the property in question.
- Fixed Deposits: FD or fixed deposit is the safest way to save money. It does not reap much return but earns a fixed amount of interest as decided at the start of the FD account. A fixed amount of sum is kept aside for a fixed tenure with the financial institution. The customer then earns a fixed interest on the sum kept aside.
- Recurring Deposits (RDs): A recurring deposit is similar to FD, but while fixed deposit is about keeping a lump-sum amount as saving-investment, RD allows you to deposit smaller amounts at regular intervals over a tenure on which you earn a specific interest percentage.
- Small Saving Schemes: These allow customers to save money in small amounts. Small savings schemes generally give some amount of return, thus can be classified as investments as well. Some of the leading examples are Employees Provident Fund, Sukanya Samriddhi Scheme, Kisan Vikas Patra, National Pension Scheme, Personal Provident Fund etc.
Thus, investment tools are great means to generate and grow wealth. There are several types of investment tools you can use to meet your financial purposes and goals.