Smart Investment Options for Beginners

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smart investment options

Have you ever thought of investing your money into something productive? Do you want to invest your cash into something where you get good returns? You can invest in many ways, but some options are better than others. Read on below to gain a better understanding of what’s out there.

1. Investing in Mutual Funds or (SIP)

A Mutual Fund is a pool of savings for multiple investors. This common pool is created to invest in any one of the assets (of your choice) or many asset classes such as: equity, liquid assets etc. It is called Mutual Fund because all the rewards, risks, gains or losses arising from the investment made out of this savings pool is being shared by the investors in the proportion of their contributions.

mutual funds investment optionThere are two ways to invest in Mutual Funds:

Direct

People can do it by visiting the nearest Mutual Fund company or they can apply online. Forms can be availed and submitted to the Mutual Fund’s company office or can be downloaded from their company website.

Agents

Agents are professionals trained to help the customers who have doubts regarding the information on various funds provided by the company. They help in processing the applications and dealing with the issues regarding the redemption, cancellation, transfer of the dealings, amongst other things. Agents usually charge a small commission which is added to the purchase price of the funds.

Three types of Mutual Funds:

Based on Assets

  • Equity Funds
  • Debt Funds
  • Money Market Funds
  • Balanced or Hybrid Funds
  • Index Funds
  • Sector Funds
  • Tax-saving Funds

Based on Structure

  • Open-Ended Funds
  • Close-Ended Funds

Based on Investment Objective

  • Growth Funds
  • Income Funds
  • Liquid Funds

2. Investing in Gold

gold investment option

Gold is a good way to ensure wealth preservation to give to future generations. There are two ways to invest in gold- physical form and on paper.

Physical gold like coins, bars, jewellery are assets that can be physically held.

Paper gold involves future contracts and ETFs and is usually traded without the physical gold. These are often meant for short-term profits and liquidation, have lower premiums and are far riskier for the beginners to invest.

Gold premium signifies two things- Spot Price and Premium Price.

Spot Price is the current market price at which an asset is bought and sold for immediate payment and delivery. The Spot Price is calculated according to the recent average bid price offered by worldwide professional traders.

Premium Price is the added cost on top of the Spot Price to cover things like minting, transporting, storage and other additional costs. The premium charges differ from dealer to dealer.

3. Fixed Deposits

fixed deposit investment option

Fixed Deposits are investment instruments offered by the bank and non-banking financial companies, where one can deposit their money for a higher rate of interest than a savings account. You can deposit a lump sum of money in a fixed deposit for a specific period ranging from 7 to 10 years. Once the money is invested it starts earning interest based on the duration of the deposit. Money from Fixed Deposits cannot be withdrawn before the maturity period but one can withdraw the money after paying a penalty. Also, tax is deducted at source, from interest on Fixed Deposits.

Benefits of Fixed Deposits

  • Investors can earn higher interest on their surplus fund from the fixed deposit and can be easily renewed.
  • There is no risk on the returns of Fixed Deposits as they are assured.
  • No effect of market fluctuations on Fixed Deposits, i.e., the greater safety of your capital.
  • You get benefitted from the interest rates offered by the company FD.

4. Real Estate

reit investment option

Investing in Real Estate is an ongoing trend as it gives good returns over a long period of time.

Benefits of Investing in Real Estate

Steady Income

Most of the yield from Real Estate investment properties comes from rental income. Regardless if the property market is down, you will still continue to earn a steady rental income. You can invest in multiple properties all in one go to increase the positive cash flow.

Long-Term Financial Security

Investing in Real Estate provides investors with long-term financial security and brings financial reward if you have a steady flow of rental income. Unlike stocks, which can rise and fall sharply in value, land prices do not fluctuate at the same rate. If anything, your house price will increase over time because land is a growing asset.

Inflation

With inflation, the value of your property increases and with increased interest rates, your rental rate will increase as well.

Wealth Creation

As with any asset class, Real Estate has its ups and downs. If you stick with it, over time the value of the land will appreciate and yield positive results. Half of the world’s wealth is tied up in Real Estate because of its low volatility and eventual good returns.

5. Bonds

finance bonds investment option

When you buy a bond, you will lend money to the government or a company and in return, they will pay a certain interest rate. Bonds are different from a deposit that you can sell them because it is not mandatory to hold them until maturity.

Returns on Bonds

Comparative to bank deposits, bonds pay a higher interest rate, therefore they are a good option if a steady income from savings is the goal. If you hold the bond till maturity and the company doesn’t fail, you will get back what you’ve put in, and the interest rate promised. If you sell the bond earlier, you have money equal to the coupon rate.

Though bonds are safer than shares, they too have some risks such as  

Interest rate risk -where the market rates rise and we are earning less compared to other investments

Inflation risk -where a high rate of inflation lowers the value of the interest we earn

Liquidity risk – when you can’t find a buyer when you want to sell.

A government bond can be safer than the bond that was issued by the company. The downside is that safer bonds tend to have lower interest rates. Some bonds have a credit rating as to guide how risky they are.

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