When it comes to the actual investment question, investors have a wide variety of options. They can choose from a wide array of assets based on their investment objectives, investment period, and risk appetites. Different types of investors can invest in the following asset classes and earn returns:
Stocks
Various categories of investors can invest in stocks of publicly traded companies through recognised stock exchanges. Investing in the equity shares of a company confers ownership rights on the investor. Additionally, investors can earn returns from capital appreciation and dividend income (if any).
Bonds
Bonds are debt securities issued by companies and governments to raise capital from investors. By purchasing bonds, investors lend money to the issuer and receive interest on the lent sum. The principal sum is due on the maturity date of the bond in question. While bond prices depend on the prevalent interest rate in the market, investors can earn steady returns from these fixed-income assets and enjoy relative capital protection compared to equity investments.
Real estate
Apart from purchasing physical property directly, different types of investors can invest in real estate through REITs (Real Estate Investment Trusts). REITs are firms that own or manage income-producing real estate. Investing in REITs allows investors to invest in high-value real estate.
Mutual funds
Mutual fund schemes pool money from different investors and invest the same in stocks, bonds, and other assets. These funds are managed by professional fund managers who decide on asset allocation according to the scheme’s objective. Mutual fund investments cater to different types of investors with varying risk appetites and return expectations. For instance, low-risk investors seeking steady returns can opt for debt funds, while high-risk investors seeking high returns can invest in equity-focused funds. Investors can use mutual fund calculator tools online to estimate returns and invest accordingly.
Exchange-traded funds (ETFs)
ETFs are marketable baskets of securities like stocks, bonds, and other assets that track a particular index like BSE Sensex. When investors buy units of an ETF, they purchase units of a portfolio that tracks the return and yield of the underlying index. ETFs aim to replicate the performance of the underlying index rather than trying to outperform it. It is easy for investors to invest and trade in ETFs since they trade directly on the stock exchange, much like individual stocks. ETFs are perfect for categories of investors seeking passive investment with good diversification.
Commodities
Commodity trading is the buying and selling of various commodities like gold, silver, oil, and sugar on the commodity market. In India, commodity trading is primarily done through derivative contracts where investors can profit from changes in the prices of the underlying commodity without actually possessing the commodity. Commodity trading is perfect for certain types of investors who have the required expertise and market knowledge about the commodity’s market.
Alternative investments
Apart from the investment instruments listed above, investors can also park their funds in alternative investments. Common alternative investments include private equity, hedge funds, cryptocurrencies, collectibles and art. Risk-averse investors can also consider conventional risk-free options like fixed deposits and safe haven assets like gold.
