Growing your money and protecting your financial future is important for everyone. Financial assets offer a smart way to achieve those goals. But what exactly are they, and how can they help you.
What is a financial asset?
A financial asset is an easily tradable asset whose value comes from a promise of future payments. This differs from physical assets like land or gold, which have their own worth. Examples of financial assets include cash, stocks, bonds, mutual funds, and your bank deposits. Their value is constantly changing based on market activity and the level of risk they carry.
What are the types of financial assets?
- Fixed deposits (FDs)
Fixed deposits are a popular choice for risk-averse investors. You deposit a sum of money with a financial institution for a specific period and earn a guaranteed interest rate. FDs are ideal for short-term savings goals or as a safe place to park your emergency fund. - Stocks (Equities)
When you buy a stock, you own a tiny piece of a company. If the company performs well, its stock price could increase, offering potential for significant returns over time. Stocks also may pay dividends, a portion of the company's profits. However, stocks carry more risk than FDs, as their prices can fluctuate based on market conditions and the company's performance. - Bonds
Bonds act like loans you make to governments or companies. They typically offer regular interest payments and repayment of your initial investment after a set maturity period. Bonds can be a good choice for investors seeking a steady income stream. While some bonds (like government bonds) are considered low-risk, their prices can be affected by changes in interest rates. - Mutual funds
Mutual funds offer an easy way to diversify your investments. They pool money from many investors and use it to buy a basket of stocks, bonds, or other assets, managed by professional fund managers. Different mutual funds cater to various risk profiles and investment goals, and they provide diversification without needing to research individual stocks or bonds. It is important to factor in their associated fees when considering mutual funds. - Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) are companies that own and manage income-producing properties like office buildings, apartments, or shopping malls. Investors can buy shares in REITs, essentially becoming part-owners of these properties. In return, investors receive dividends generated from the rental income, offering a way to participate in the real estate market without directly buying physical properties.
What are liquid assets?
Liquid assets are financial assets that can be easily converted into cash. Think of them as the readily accessible funds a company or individual has on hand. Examples include cash, bank deposits, money market funds, and publicly traded stocks that can be sold quickly on an exchange. Liquidity is important because it allows flexibility in meeting short-term financial needs or adjusting investment strategies.
Bajaj Finance also allows premature withdrawal on their Fixed Deposit, providing you with access to your funds in case of emergencies.
What are Illiquid assets?
Illiquid assets are financial assets that cannot be easily converted into cash. They often require finding a buyer and negotiating a sale. Examples include real estate, private company shares, collectibles (like art or antiques), and complex financial instruments. Illiquid assets can potentially offer higher returns, but they carry more risk due to their lack of immediate accessibility.
Advantages of financial assets
- Liquidity: Many financial assets, like stocks, bonds, or mutual funds, can be easily bought and sold on markets. This offers flexibility if you need cash quickly.
- Potential for growth: Certain financial assets, like stocks, have the potential to increase significantly in value over time, offering opportunities for substantial returns.
- Income generation: Investments like bonds or dividend-paying stocks can provide a regular income stream, supplementing your earnings or supporting you in retirement.
For a regular income, consider a Bajaj Finance Fixed Deposit. They offer flexible payout options, including monthly, quarterly, half-yearly, or annual payments - Diversification: Financial assets offer countless ways to diversify your portfolio. By investing in a mix of assets with different risk profiles, you can manage overall risk and potentially improve long-term returns.
- Accessibility: Investing in financial assets is easier than ever before. A simple online brokerage account can open many possibilities.
- Hedge against inflation: Investing in financial assets that offer returns outperforming the inflation rate can help preserve the purchasing power of your money.
Conclusion
Financial assets offer a diverse range of options to help you build wealth, generate income, and achieve your financial goals. From the safety of savings accounts to the potential growth of stocks, there is an investment strategy for everyone. Understanding the different types of financial assets and their associated risks is the key to making informed decisions and building a strong financial future.
