Building financial security is crucial and to ensure it one must prioritize financial planning and building provisions for the future. In this regard, having multiple income streams comes in handy, especially in building a corpus. However, saving money in the bank is not the right way to make the money work or generate an additional income stream. Individuals should instead consider putting money into smart investment routes to grow their wealth and generate passive income. However, they should have a clear goal about their investments and then find out how to invest money so that they can amplify their earnings and build a safety net for their future. For instance, they should identify if they have a short-term or a long-term goal and find their risk-taking capacity. Following this they will be more equipped to understand which investment instruments or routes are best suited for them.
In this article, let’s explore the different types of investment options and how to invest money.
Know the Types of Investment
Investing might seem like a daunting journey, especially if an individual does not have much knowledge about the market and its momentum. This makes it crucial to understand the risk spectrum of popular investment instruments to navigate the landscape with confidence and success.
On that note, let’s discuss the primary three risk categories to understand their scope and then proceed to explore some of the best investment options under them:
High-risk investment instruments are known to offer substantial returns in the long term, but during the market slowdown, they can erode one’s capital significantly. For instance, equity stocks and equity-oriented mutual funds are popular high-risk investment options that are known for their intense sensitivity to market momentum and the notable potential for generating significant returns. This makes it suitable only for those entities that can stomach high risk and can afford to weather market volatility. However, individuals must have a solid understanding of the prevailing market trends and dynamics to make the most of these rewarding but challenging, investment instruments.
Those seeking growth without being exposed to excessive risks can consider moderate-risk investment vehicles like the Unit Linked Insurance Plans with index or balanced funds. These plans possess the potential to generate more competitive returns than most safer plans while enabling individuals to gain an estimate of their future performance. While guaranteed returns on investments are rare, these mid-risk investment instruments can help make an informed prediction based on their historic market performance and more.
Those looking for stability in their investments should consider exploring fixed-income options. These investment instruments tend to offer predictable returns on capital, shielding the investor from market fluctuations. Right at the time of investment, they know exactly what they are likely to receive at the time of maturity. This makes the investment instruments perfect for those with low risk-tolerance levels or those who have defined goals like a child’s education. Some of the most popular low-risk investment options include fixed deposits, endowment insurance plans, and National Savings Certificates.
Find out where to invest
India is a buzzing hub of financing activity that offers several avenues to park money and build wealth. Instead of keeping one’s money at home or savings account, investors can invest them in lucrative avenues to generate substantial revenue and meet their goals. Based on one’s financial goals and risk-taking capacity, individuals can park money in options like –
- Fixed deposits
- Public Provident Fund (PPF)
- Real estate
- Foreign exchange
Since each of these options has distinct characteristics, individuals must check them and compare them to decide which instrument would help them reach their goals more effectively. To make an informed choice individuals are suggested to weigh their liquidity needs, sources of income, risk tolerance levels, the need for wealth creation, and the life insurance prospect.
Popular options to invest
These are some of the most popular insurance instruments to check out –
These investment instruments are a necessity to safeguard one’s financial future and future liabilities. They are deemed excellent for young individuals as they are more likely to get a high cover at a relatively low premium as individuals consider them to be less risky than older individuals. Today, individuals have multiple insurance options at their disposal to choose from. Based on their needs and requirements they can opt for a pure protection plan like a term insurance that offers death benefit to policy beneficiary in the event of the unforeseen death of the insured. Those who are looking for a blend of protection plus investment features can choose a Unit Linked Insurance Plan and enjoy the best of both. Such a plan allows individuals to put money into different investment instruments based on their preferences and needs. Individuals can also choose to invest in health plans with critical illness coverage to build provisions for emergencies.
Mutual funds are counted among the most popular investment options today. They offer investors the advantage of parking money into lucrative company stocks without the need for the expertise of professionals. Today, investors can park their money into debt mutual funds, equity funds, balanced funds, etc., based on their financial goals and risk capacity. Mutual funds are considered lucrative options that help attend to one’s liquidity needs and the need for generating a stream of earnings and growing capital.
Fixed deposits and Provident Fund (PF)
Fixed deposits and Provident Funds (PF) are popular among individuals with little to moderate risk-taking capacity. The instruments are considered safe avenues of investing as they are not linked to the market and do not expose the capital to market fluctuations. These options are also known to offer better liquidity and safety to investors. These schemes help mobilize savings regularly to build a robust corpus over time.
Individuals have several options to invest their money. However, they should first identify their standing as an investor, recognize their financial goals, and more importantly their risk-taking capacity before selecting any investment instrument. Subsequently, they should find the best option for their needs and how to invest money in them.