Where to Invest

In your investment journey, the next thing to know is where to invest after making a decision to invest. When considering investing, you must select an asset class that matches your risk and return objectives. For example, you might be willing to accept a lot of financial risks, whereas another person wants to take no risk with their investment and yet another person is willing to take a modest amount of risk.

Check some of the popular asset classes below :

1. Fixed income instruments
2. Equity
3. Real estate
4. Commodities (precious metals)

Fixed Income Instruments

Your principal amount(the money you invest) is thought to be safe when you use fixed-income instruments as a means of investment in your investment journey. On the principal amount you invested, the entity that is giving fixed-income instruments pays you the interest amount. The most straightforward illustration of a fixed investment instrument is the bank’s fixed deposit program. In this Quarterly, semi-annually, or yearly interest payments are all possible. At the end of the investment period, also known as the maturity period, the principal amount is returned to the customer.

fixed-income instruments are –

1. Fixed deposits with banks
2. Government of India bonds, commonly known as G Sec bonds and T Bills.
3. Government-related bonds issued by organizations like GAIL, HUDCO, NHAI, etc.
4. Corporate bonds from companies like Tata, Infosys, Reliance, and Birla.

The rates for the various instruments vary because of the risk involved in them. Government bonds are considered the safest investment because the government cannot defraud and flee with your money.

Equity

The second Investment class is equities in which the buying of publicly listed companies’ shares is included. The shares are traded in the NSE and the BSE.

There is no capital guarantee when you invest in equity as compared to fixed-income instruments. The profits from equity investments, however, can be significantly higher in comparison to fixed-income instruments. Return from best equities in the Indian stock market over the past 20 years is around 12-15% CAGR. To identify such equities one needs due diligence and perseverance.

Buying and selling of commercial and non-commercial real estate products(transacting in vacant plots, apartments, and commercial buildings) comprises real estate investment. Income from rent and capital appreciation are the two main sources of revenue from this investment class. The normal rental yield ranges between 2 and 3%, which is not really appealing. There have been some localized and uneven price increases for land.

A tedious process, involving document legalization is very complicated to understand and execute. Real estate investments typically involve a huge chunk of money. The returns produced by real estate are not formally quantified. It would therefore be difficult to comment anything substantially on this.

Commodity – Bullion

One of the most common investment options during your investment journey is gold and silver. Over the past 20 years, investments in these metals have generated a CAGR return of roughly 5-8%. For gold and silver investments there are multiple ways to start investing in it. Jewelry, Exchange Traded Funds (ETF), and Sovereign Gold Bonds, sometimes known as SGBs, are all viable investment options.

Before investing Points to be taken of :

Financial planning includes investing, but before you begin your investment path, it’s a good idea to be aware of the following:

1. Risk and Return: The return is higher when the risk is larger. The return is lesser the smaller the risk is. So before starting your investment journey weigh the risk and return according to your objectives set.
2. Fixed income investments: A wise choice if you wish to safeguard your principal investment. It is considerably less dangerous.
3. Investment in Equities: A great option. Over a long time, it has been known to outperform inflation. Equity investments have historically produced returns of around 14–15%. Equity investments, however, can be risky and dangerous for your capital amount.
4. Real Estate: Investing in real estate needs a substantial financial commitment and cannot be done with smaller sums. Another problem with real estate investing is liquidity; you cannot purchase or sell at any time which is not the case with equity and fixed income instruments.
5. Gold and silver: These are relatively safer, but the historical return on such investment has not been very positive.

Conclusion :

Now after seeing all investment classes, it would be fascinating to examine which investment class would have given you maximum return on average, after investing in any of the above-mentioned classes.

The best gains typically come from stocks, particularly if you have a long-term investment horizon.

It is a good idea to spread your investment over several asset classes. The best investments are those that include a variety of asset classes. Asset allocation (Diversification) is a method of dividing up financial resources among various asset classes; we shall talk more about diversification later on.

A young professional might, for instance, take a bigger risk given their age and the years of investment they have. A typical allocation for investors is at least 60% in stock, 20% in precious metals, and 20% in fixed-income investments. Depending on the age and risk profile, the percentage mix varies. A retired person, for instance, might invest 80% in fixed income (perhaps in government bonds), 10% in equity markets, and 10% in precious metals.

Now you know where to invest. The coming articles will throw more light on the financial markets.