Investment refers to the buying of a fixed asset with an intention of making a profit from it in the future. There are different types of investments and it is important to know what type you should be investing in to get the best out of it. The four types of investments are fixed deposits, equity investments, mutual funds, and alternative investments. We shall discuss each type of investment briefly so that you can understand better where to invest.
Fixed deposit is an investment wherein an asset is insured against an interest rate. Interest rate depends on the economic factors prevailing in a country. To invest in this type of investment is to put money into an asset with the aim of making a profit from it in the near future at a fixed interest rate. Basically, to make a profit means generating income out of an investment through the increase of the value of that asset or a predetermined amount over a defined period of time, usually years. For instance, when an investor puts money into a fixed-deposit account, that person will be earning interest from that interest in return every month.
Equity investment refers to any financial activity involving the sale or transfer of partial interests in a company to the shareholders. Common examples of such businesses are stock market and bond market. To invest in stocks means to buy shares of the stock with an aim of increasing the value of that particular share. Usually stocks are sold for a higher price than the price per share originally paid so as to generate income from any increase in value of that particular stock.
Mutual funds refer to groups of investments made by a fund manager in order to achieve a particular goal. An example of such an investment is bond investing wherein investors buy bonds from a fund and sell them back to the investors in a consolidated amount. This can help investors generate income in case the interest rates on their bonds drops. Some mutual funds invest in stocks and bonds, while others put most of their funds in equities like bonds and the like. In a way, this can also be a form of investment since the returns generated in equities can help an investor to generate income.
Real estate investing refers to buying a property, which may be residential, commercial or even vacant land. Properties are purchased with an intention of turning them into real estate assets that can earn income through rent. This is considered to be a long term investment since the purchase and sale of properties require a lot of capital investment. A good real estate investment may be able to generate high profits depending on the location of the property and the prevailing trends in the area. For residential properties, a lot of planning and careful research is needed to make sure that the investment pays off in due time.
Many people these days are looking to save up money and for that they are turning to asset allocation plans such as savings, bonds, mutual funds, etc. There are many ways in which these plans can be implemented so that all financial requirements of an individual are met. For instance, saving can either be done informally or through systematic means. Informal saving refers to putting away money in an envelope or other container, keeping it in one place, and then disburse the same as per need. For systematic saving, the entire corpus or value of the savings should be invested in various assets like bonds, shares, commodities, etc. By having these plans, the individual ensures that all financial needs of an individual are met and helps in investment.