INTRODUCTION TO INVESTMENT

By Moksha Grover

The process of depositing money into financial schemes, shares, property, or a commercial venture with an expectation to receive more money in future is known as investment. While you are busy working in your life, you may need a side income and Investment is considered to be the best side income for a person. Investment is needed to fully reap the benefits of your labour in the future. The objectives of investment funds can be generally classified as the following:

  • Invest to maintain capital.
  • Invest to achieve income.
  • Invest to achieve income and growth.
  • Invest to achieve growth.
  • Invest to achieve high growth.

Investments can be in cash, bonds, mutual funds, exchange traded funds (ETFs), stocks or any other alternative investments.

INVESTMENT IN CASH

Cash at bank is the most easiest, understandable and safest form of investment. It guarantees that investors will get their capital back and also tells them about the interest they’ll earn on it. Investors can also use certificate of deposits (CDs) which is given by the banks on a lump some amount for a fixed period of time. Certificate of deposits give higher rate of interest to investors than the savings account.

INVESTMENT IN BONDS       

A bond is a fixed income instrument representing a loan made by an investor to a borrower. A typical bond will involve either a corporation or a government agency, where the borrower will issue a fixed interest rate to the lender in exchange for using their capital. Bonds rate usually depends upon interest rate. Due to this, they are heavily traded during periods of quantitative easing or when the Federal Reserve—or other central banks—raise interest rates.

INVESTMENT IN MUTUAL FUNDS

A mutual fund is a type of investment where more than one investor pools their money together in order to purchase securities. Mutual funds are not necessarily passive, as they are managed by portfolio managers who allocate and distribute the pooled investment into stocks, bonds, and other securities. Individuals may invest in mutual funds for as little as $1,000 per share, letting them diversify into as many as 100 different stocks contained within a given portfolio. Mutual funds can be designed to mimic underlying indexes such as the S&P 500 or DOW Industrial Index.[1]

INVESTMENT IN EXCHANGE TRADED FUNDS (ETFs)

Exchange Traded Funds (ETFs) have become quite popular since their introduction back in the mid-1990s[2]. ETFs are quite similar to mutual funds. The main difference is that, they trade throughout the day, on stock exchange. They tell about the buy and sell nature of stocks. Their values can also change drastically during the course of trading day.   ETFs can track an underlying index such as the S&P 500 or any other “basket” of stocks the issuer of the ETF wants to underline a specific ETF with. This can include anything from emerging markets, commodities, individual business sectors such as biotechnology or agriculture, and more. Due to the ease of trading and broad coverage, ETFs are extremely popular with investors.[3]

INVESTMENT IN STOCKS

A person can make a lot of money by investing in stocks or trading in stock market but it is not meant for new investors as there is some amount of risk involved. Careful planning has to be there when it comes to investment in stocks. The investor must have a solid understanding of stocks and how they trade in the market or risk losing money in a volatile type of investment.

ALTERNATIVE INVESTMENTS

There are three sectors in alternative investments namely- Real Estate, Hedge funds and Commodities.

REAL ESATE

Investors who wish to invest in commercial or residential property can acquire Real Estate. They can also purchase shares in real estate. Investors also have the option of investment trusts (REITs) which are very similar to mutual funds. In REITs a group of investors pool their money together to purchase properties.

HEDGE FUNDS

Hedge funds, which may invest in a spectrum of assets designed to deliver beyond market returns, called “alpha.” However, performance is not guaranteed, and hedge funds can see incredible shifts in returns, sometimes underperforming the market by a significant margin. Typically, only available to accredited investors, these vehicles often require high initial investments of $1 million or more. They also tend to impose net worth requirements. Both investment types may tie up an investor’s money for substantial time periods.[4]

COMMODITIES

Commodities refers to investing in tangible resources like gold, silver, crude oil etc.

Investing is important as it ensures financial and future security. You have more money in bank and also another income stream through investing. Investing is the only way to achieve growing wealth and passive income.


[1] James Chen, ‘A Beginner’s Guide to Asset Classes’ Investopedia (July 6, 2021).

[2] Ibid.

[3] Ibid.

[4] Ibid.

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