India has seen a massive turn in the investment scenario over the last two decades and of late, options have piled up many folds in asset classes. With the increasing middle-class segment and awareness in terms of financial planning in India, investors in this country are on a look-out for an increasingly varied form of investment opportunities. Here are a few common ones in India:
Stocks:
Purchase of shares in listed companies. Since these are shares of a company, the rate of growth is comparatively more but quite risky at the same time. One can buy a share on a stock exchange in India. The choices may include: NSE or BSE. Stocks are meant for long-term investors since they can tolerate market fluctuation. Many Indian investors invest through equity mutual funds-that is, a pool of funds coming from multiple investors invested in diversified portfolios of stocks.
Mutual Funds:
Mutual fund perhaps remains the most famous investment option that allows a diversified portfolio and professional management. Again, the corpus accumulated from diversified investors is invested in some number of those assets either in the form of shares or bonds or any other kind of securities by collecting the amount of funds generated. This too has three major categories: Equity Mutual Funds, Debt Mutual Funds, and Hybrid Funds. Against this background, among some of the fad investment plans of the year 2024 is to be found Systematic Investment Plans, or SIPs for short, in which an investor sets up some amount for investment at a periodic cycle so that cost of purchase is averaged out and the volatility thus kept at bay for a relatively short period.
Fixed Deposits (FDs):
A fixed deposit, as its very name suggests, is an investment or rather saving by putting in a one-time money into the bank or financial institution for a fixed period. This attracts interest from the investor which, after all, is relatively greater than the earnings in savings accounts. Besides, savings and investments for this sub-section 80C of the Income Tax Act have got one more tax-saving option for fixed deposits, that being the type carrying a lock-in period of 5 years.
Real Estate:
Real estate happens to be one of the favourite options in India for investments. It is thought of as a hedge against inflation. Some other such similar ways through which one can invest in real estate include different modes, and one of the mediums is where one buys a residential or commercial property or land.
Gold:
It is, in general, a store of value in India. It stands as an investment haven for such uncertain times about the state of the global economy. Investment in gold is available through three channels. The first option is physical gold- jewellery, coins and bars. The second one is through sovereign gold bonds of the government with 2.5% p.a. interest coupled with capital appreciation. The third one is through **Gold ETFs** or Exchange-Traded Funds; Gold is an investor’s favourite, retaining the purchasing power of money and acting as a haven for a portfolio.
Bonds and Debentures:
These are fixed income instruments issued by company or government to raise fund from investor. The interest compounds periodically with the maturity of principal. Government Bonds Corporate Bonds are also available equally as risk-free option like Tax-Free Bonds and government securities. Conservative investors, who get satisfied with stable returns and low risk go for bonds.
PPF: Savings Scheme with tax benefits and attractive rate of interest normally 7-8% p.a in the year 2024, it is one of the most popular instruments for retirement saving in India because it offered tax benefit along with a lock-in period of 15 years but partial withdrawal is possible after 6 years
National Pension System (NPS ):
National Pension System is another retirement saving scheme for which the government has been very successful in attracting the Indian investor. In simple words, it is corpus accumulation for retirement by investing some part of your savings in the right proportion of equity, corporate bonds, and government securities.
There are multiple options, such as under the head risk category and also under all types of financial objectives being invested in India 2024. Investment FDs and gold gives an enormous return on equity and mutual fund assets.
Most financial planners will always advise investing in diversified portfolios since diversified portfolios maximize potential return with the least possible risk.
Investment Risk
At its most basic, ‘’investment risk’’ is simply the probability that the actual return on an investment turns out to be different from the expected return. It can be a loss or a gain. All types of investments carry some amount of risk because they are all sensitive to uncertainties in financial markets and other factors related to specific economies and companies. An example is the potential loss while purchasing equities since it has a possibility that coincidentally the stock’s value may decrease. For bonds, it has a probability for the issuer to default on its interest payment or, at worst, its principal amount for an investment opportunity.
Even though risks cannot be completely avoided, they can be managed. Perhaps the most widely used method of investment risk management is through diversification: distributing investments across a variety of assets so that losses in any one asset are mall. Risk tolerance by an investor-that is, their ability to accept variations in value-will probably influence the types of investments they would make.
The sources and differences among the various types of investment risks are very diversified. Investment types, in general, can therefore be grouped under the following categories:
Market Risk (Systematic Risk):
That risk is that the value of an investment may be affected by broad economic, political, or other changes in the entire market. Market risks can never be diversified away.
A portfolio can be diversified through investment in different companies or sectors. Diversification of a portfolio reduces risk.
Credit Risk:
Credit risk This is the chance that the borrower, being in this case a bond issuer or any other debt product, will fail to pay the interest or principal amount in time. The credit risk aspect is very much more important to fixed-income securities such as corporate bonds.
Examples: Default by a corporation in its bond payment, default by a state in sovereign debt payment.
Liquidity Risk: This is the risk that prevents an investor from liquidating or acquiring a security, or an asset, without experiencing significant market effects in terms of prices. It simply implies that the investor cannot sell a security in haste at the current fair market value since the number of available buyers is minimal or the market depth is shallow.
Examples: Some investment products, particularly real estate or small-cap stocks have insufficient demand in the market. The securities will need to sell at a discount to free it up quickly.
Interest Rate Risk:
This impacts the value of investment to be lesser. Its impact majorly is on fixed-income securities, which involve bonds. When interest rates increase, the price for the bonds decreases, and vice versa.
Inflation Risk (Purchasing Power Risk):
The risk is such that the return on an investment will not outpace inflation and thereby reduce the real purchasing power of money invested. It is particularly germane for long-term investors, especially those investing in fixed-income securities.
Examples: If inflation goes up by 3% and an investor’s yield is less than 2%, then his net return is 1%.
An ideal balance portfolio can quite often be able to give the investor the chance of advancing his money-making purposes; hence, even though full risk can never be avoided, there will always be a well-achieved balance portfolio between risk and return that serves the need of investors.