6 Types of Investments Concepts

Don’t we all want to invest our money and get the maximum reward out of it. So the next important question which arises is ‘How’? Not everyone understands what Investing or asset management is and what would suit them best. Let’s get a brief idea about the different types of investments and how they fall in the risk percentage.

1. Cash

Cash deposit is the easiest, simplest, safest means of investment. It gives the investor exact facts on the interest they’ll earn, along with the guarantee of locking their money safely like FDs. The only drawback is that a savings account seldom beats inflation. Moreover, there can be penalties incurred on early withdrawal.

2. Bonds

Though a bit higher on the risk ladder, bonds are those tools of debts in which investors effectively loan money to a company or agency (the issuer), in exchange for periodic interest payments, along with the maturity value of the bond’s face amount. Bonds are usually issued by various corporations, states, municipalities, and governmental agencies. Bonds can either be purchased as new offerings, or can be procured through the secondary market. Though a bond’s value fluctuates based on a multitude of factors, but it’s mainly influenced by current interest rates.

3. Stocks

Shares of stock calls for investors to participate in the company’s profits through either increase in the stock’s price or through dividends. Shareholders can claim on the company’s assets in case of liquidation if the company is going bankrupt, but do not own the assets.

4. Mutual Funds

A mutual fund is managed by an investment manager, who invests for the investors into various stocks, bonds or other investment vehicles, as described in a fund scheme. Some mutual funds can passively track stock or bond market indexes while others have to be actively managed by portfolio managers who handpick the underlying investments. So these funds costs a little more and are deducted from the investor’s returns. Mutual funds hand out gains in the form of dividends, interest and capital gains. These distributions are taxable if held in a non-retirement account.

Mutual funds are valued at the end of the trading day.

5. Exchange Traded Funds (ETFs)

Exchange-traded funds (ETFs) have been quite sought after since its introduction back in the mid-1990s. Though similar to mutual funds, they trade throughout the day on the stock exchange like any other shares of stock. The only difference being that they are valued at the end of each trading day, so the ETF values fluctuate intra-day.

6. Alternative Investments

There are innumerable alternative investments, here are some of the popular ones –

• Real estate- Investors can directly buy commercial or residential properties for either personal use or for leasing and renting.
• Hedge funds and private equity funds – These invest in a spectrum of assets, and often outperform conventional investment methods when the markets are turbulent. Private equity allows companies to raise capital through private means. As they indulge in high scale investment they also tend to impose net worth requirements. Here both investment types tie up an investor’s money for reasonably long time.
• Commodities – These refer to tangible resources such as gold, silver, crude oil, and also agricultural products.

Conclusion –

Investment education is essential and one should rely on sound recommendations from experienced investors, professionals and financial advisers for the most suitable form for you.

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