Where can you invest?

Wealth creating assets in which you can invest can be broadly classified into the following classes:

  • Equity or stock market investments including mutual funds
  • Debt or fixed deposits and government bonds
  • Gold & diamonds and other precious metals
  • Real estate
  • Art  and Antiques

So, it’s either financial assets including securities market related instruments or physical assets.

EQUITY
When compared to any other class, investing in equities is definitely riskier, more rewarding than you can imagine and every exciting too. World over, and in India stock have outperformed every other asset class in the long run. An investment of just Rs.10,000 in  companies like Infosys , Ranbaxy , Cipla and Wipro in 1980’s would have grown into Crores and Crores of rupees by now . As an equity investor of a company, you become part owner of that company and hence participate in the overall growth opportunities of the same. However, as said earlier , equities are risky investments. Hence, you cannot put all your money into equities.

DEBT
Debt investments includes fixed deposits with banks, debt mutual funds and government schemes where you will be rewarded a fixed rate of interest year on. Debt schemes are popular because it carries less risk, you get definite income by the year end and your income is always predictable. This is not to say that debt instruments are risk free. They too, carry risk. Even governments can default in repayment. Secondly, inflation is another serious risk.. We have already talked about inflation earlier.So, putting all your money in debt is not a good idea. Yet,  it is essential to have some amount of money invested in debt – to bring stability to your investments.

GOLD
Investors must have this item in his portfolio in order to diversify and also reduce the risk and volatility in his portfolio and to bring consistency. Especially in India, gold is the most liquid investment. Bank fixed deposits, national savings certificates etc would take at least 3 to 6 days to concert to cash. But gold can be converted to cash almost instantly over the counter.

REAL-ESTATE
If you have lakhs or millions in your bank account, real estate investments are for you. This class of investments gives high returns at lowest risk. The benefits of investing include – higher risk adjusted returns, assured regular income and definite capital appreciation. However, you need to be careful in this filed too. In most Indian cities, real estate prices are at its peak and consequently, getting target returns out of it has become quite confusing. Nature and volume of income from it depends whether your property is in a residential area or commercial area or is it a vacant space fit for godowns/storage houses or is it an open space fit for wind mills and industries. Real estate investments are one of the most illiquid investments. Normally it takes at least 5 to 6 months to convert it to cash. One more disadvantage is that you need at least 15-20 lakhs to start investing.

ARTS AND ANTIQUES
If you have the money and the guts to try something new and exciting-consider arts and antiques. Especially art. It is supposed to be the next big asset class. Earlier, it was not considered as investments but now, works of great artist are sold for millions. The key is to find out artists who have the potential to become high profiles in he future. But, for that you need to know about the subject thoroughly. Experts say that  the Indian Art market is growing at rate of  40%  yearly.  However, art , as an investment vehicle, has many negatives.  You cannot go out and suddenly sell off the masterpiece you own. The art market is risky because -

  • The valuation is always subjective and there are no hard and fast rules for valuation.
  • There is no regulation what so ever to ensure any sort of transparency.
  • The liquidity part is always doubtful.
  • It’s one asset class which cannot be pledged.
  • It’s difficult to store fine art pieces.

WHAT’S NOT CONSIDERED AS PURE INVESTMENTS

  • INSURANCE
  • Insurance is nothing but an agreement between the insurer (The Insurance Company) and the insured (You) to pay an amount as compensation if any unexpected event occurs.The goals of Investment and Insurance are totally different. A lot of us take Insurance policies as investments. It’s a wrong approach and needs to be corrected.

  • DERIVATIVES
  • Derivatives( futures and options) are very destructive. These are not investments. Derivative financial instruments can be used for protection from losses (technically called hedging).If derivative investments used in amateur hands, they can be very dangerous by bringing excitement: fast results, quick loss or thousand fold profits may pull in the vortex of emotions and don’t let out until everything will be lost.Derivatives as investment instrument should be considered only in carefull professional hands.

CONCLUSION

Equities , debt and gold and within the reach of any one. You can always invest small amounts of your savings into those three categories. These three category of investments are well regulated by the government. Real estates are solid  investments, but requires lot of money. Art and antiques are risky investments. They are not regulated.

A proper investment plan would be to create a balanced portfolio that consist of equities, debt and Gold. Real estate is also preferred – Provided you have the money to invest.

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2 Responses to “Where can you invest?”

Mitchell

September 22, 2011 at 12:08 am

I hadn’t thgohut of that!

shubh

November 23, 2012 at 10:54 pm

In case of Equity,does the investor got right to invest small amount in big companies?
Or the amount to be invested is fixed by the companies?

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