Investing enables individuals to achieve their financial goals, such as creating funds for retirement, higher education for children, funds for children’s weddings, and accumulating funds for significant purchases like homes and cars.
If you are planning any form of investment, here we discuss five different options for investment based on your risk tolerance and potential returns.
- Investment in Debt Instruments: Investing in debt instruments offers nearly guaranteed returns. The interest is predetermined in these instruments. Companies or institutions utilize this investment medium to raise funds. Investors invest in it to earn a certain interest income. Investments can be made for both the long and short term.
- How to Invest: Investment can be made through banks and the post office.
- Who Should Invest: Suitable for those who do not want to take significant risks.
- Equity Investment: Equity refers to shares in a company. Equity investment offers the potential for high returns, allowing you to grow your wealth over time. Stocks, Exchange-Traded Funds (ETFs), and Mutual Funds can be used for equity investment. It involves market-related risks, so long-term investment is preferred.
- How to Invest: Open a demat and trading account with a broker.
- Who Should Invest: Suitable for those willing to take risks.
- Gold and Silver Investment: If you prefer investing in gold and silver, you can do so through physical gold, such as jewelry or gold biscuits/coins. Additionally, investment can be made in Gold Exchange-Traded Funds (ETFs) and Sovereign Gold Bonds. Gold investments offer lower risk compared to equity with the potential for higher returns.
- How to Invest: Requires a demat account for Gold ETFs. Physical gold can be purchased from jewelers.
- Who Should Invest: Suitable for those seeking lower risk and good returns.
- Commodity Investment: Listed companies’ shares are bought and sold in the equity market. In contrast, the commodity market deals with raw materials such as black pepper, coriander, cumin, turmeric, and metals. In India, there are two main exchanges for commodity trading – Multi Commodity Exchange (MCX) and National Commodity and Derivatives Exchange (NCDEX).
- How to Invest: Requires a broker and a demat account.
- Who Should Invest: Suitable for those willing to take risks.
- Real Estate: Real estate investment involves buying and selling properties. Investors can earn good returns over an extended period. Rental income can also contribute to returns. Real Estate Investment Trusts (REITs) provide another avenue for real estate investment, similar to mutual funds but in the real estate sector.
- How to Invest: Requires a demat and trading account for REITs.
- Who Should Invest: Suitable for those willing to take risks.
Now, understand the rules of investment… Before embarking on the journey of investment, two things should always be kept in mind: time and the return on investment. Five financial rules can assist you in your investment journey.
- Rule of 70: According to the Rule of 70, divide 70 by the current inflation rate to determine how quickly the value of your investment will halve. For example, if the inflation rate is 5%, your money’s value will halve in approximately 14 years. Therefore, invest where you can get an annual 5% return.
- 50-20-30 Rule: According to the 50-20-30 Rule, divide your salary into three parts – 50% for household expenses after tax, 20% for immediate needs, and 30% for future needs. Allocate the 30% portion to investments for future needs.
- Rule of 72: The Rule of 72 indicates the time it takes for an investment to double. Divide 72 by the expected return or interest rate. For instance, if you receive a 15% return on SIP investment, it will take approximately 4.8 years to double your money.
- Rule of 114: The Rule of 114 calculates the time required for your investment to triple. Divide 114 by the expected return or interest rate. For example, if you receive a 15% return on investment, it will take approximately 7.6 years to triple your money.
- 100 Minus Age Rule: The 100 Minus Age Rule is related to allocating assets. Subtract your age from 100, and the resulting number represents the percentage that should be invested in the stock market. This rule is based on the idea that the younger you are, the more risk you can afford to take.
