Investments ,Objectives , Types and Categories

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Fincrif India

Aug 3

11:44 PM

When you invest your savings in assets that have some degree of illiquidity or investment risk, you are converting your savings into an investment. With the aid of these assets, you can build money that can be utilised for a variety of purposes, including an emergency fund, retirement savings, a home purchase, a child's education, etc.

An item that has the potential to increase in value, provide income, or do both is what is meant by the term "investment." In order to receive consistent dividend payments and capital growth in the form of share price, you could purchase equity stock in a publicly traded company, for instance.


When you invest your savings in assets that have some degree of illiquidity or investment risk, you are converting your savings into an investment. With the aid of these assets, you can build money that can be utilised for a variety of purposes, including an emergency fund, retirement savings, a home purchase, a child's education, etc.

Objectives of Investments 

As you advance in life, you will need to invest more money. More money will need to be invested due to increasing duties. The following list includes the main goals of investing:

Keep your money safe

You can protect your money from impulsive and pointless spending by investing. You can avoid the consequences of inflation on your money with its assistance. Aside from investments in assets that pay interest, inflation reduces the value of your money. Consequently, investment will enable you to automatically keep pace with inflation.

Save more money

The sole method for beginning to expand your invested funds is through investment. If you keep the interest invested, it will also start to earn interest, allowing your money to grow in value.

Construct emergency funds

Ups and downs are a common part of life.While occasionally you are making a respectable income and saving money, other times you require a sizable chunk of money for an emergency. You may aid yourself on days like these by creating investing pools.

Secures your retirement life

When you are retired, you don't need a job to make ends meet. Once you have amassed a retirement fund, you can enjoy the independence that comes with it.

Taxes saved

You can deduct investments in tax-saving products like ULIPs, PPFs, NPSs, and life insurance policies from your taxable income. As a result, investing in particular assets can help you lower your tax obligation. Many of these assets also assist you in lowering future taxes thanks to their tax-free maturity values.

Fund More Important Life Objectives

To buy your next car or construct a home for your family, your monthly income will not be sufficient. But both might be feasible if you put a little money aside and wait a few years.

Different Categories of Investments

You can anticipate a specific level of risk and return ratio depending on the sort of asset you invest in. The following categories can be used to classify all investments:

Owners' Equity

Given that you directly possess the ownership stake, these investments are among the riskier ones. Owners only make a profit after covering all costs and obligations. You become a party to the company's gains and losses if you have an ownership share.

Lending

Since you obtain the borrower's commitment to pay interest, lending is thought to be safer than equity ownership. You therefore have priority over the owners when it comes to the money. The rate of return, nevertheless, will also be reduced.

Participation in Money Markets

Investments in money markets are short-term debt obligations, with maturities of up to 365 days or less. T-bills, commercial papers, and more examples are available. These investments are secure even if they won't yield as much money.

Types of Investments 

There are a variety of investing alternatives available, so you should shortlist the best ones based on your needs. Equity and debt are the two basic categories into which investments can be split. Equity basically makes a variety of investments in stock of firms. Your funds are invested in debt through the use of money market instruments.


Stocks : The ownership stake you have in the company is represented through stocks. Changes in the share price or dividend payments on stocks will yield a return on investment. As one of the riskiest investments, it has the potential to be very volatile.


Bonds : The borrowing tool known as bonds. Priority in obtaining business assets belongs to bondholders. Because of this, they are regarded as being safer than equities investments. Furthermore, because bonds are often issued with fixed coupon rates, a bondholder's return on investment will be more stable than a stockholder's.


Mutual Funds: Mutual funds are collections of assets that are expertly managed. To earn a return on the combined funds, it can pool the funds from thousands of small investors and build a portfolio of up to 30 assets. Investors can choose their asset portfolio through mutual funds based on their risk profile and make small, frequent investments. 


Unit Linked Insurance Plans: ULIPs are life insurance policies that let you invest in diversified funds based on your risk tolerance. Your investments will yield market-linked returns and tax advantages. No matter how the invested money performs, life insurance will still be offered.


Golds: Investing in actual gold could be costly, hazardous, and difficult to store. As a result, you can invest in gold via technological means. Some of the well-liked options to invest in gold and track its price are gold ETFs and gold bonds. 


Public Provident Fund (PPF): This plan comes with a solid rate of return and a government guarantee. You can beat inflation and accumulate significant wealth with PPF, all fully tax-free. PPF also permits sufficient liquidity. As a result, this investment aids in the development of a family emergency fund. After the account has been open for 15 years, it can be extended. So, at age 60, you can take a tax-free pension and use the money to save for your retirement.

Why is your Choice of Investment Asset Important?

Three considerations must be balanced when choosing an investing option:


  • Liquidity

  • Risk versus Volatility-Return

  • Investment Term


Liquidity and risk-return typically have inverse relationships with one another. The longer your investment tenure will need to be, the lower the liquidity will be as the risk level increases.

Conclusion 

Stocks, real estate, gold, diamonds, and other assets come in a variety of forms and can provide the benefit of capital gains. They all involve a considerable level of danger at the same time.

Blue chip stocks have the potential to grow in value over time while also offering moderate dividend income. On the other hand, growth stocks are more unpredictable and dangerous. However, they may yield higher profits. Other tools to achieve this goal include exchange-traded funds or mutual funds.

Additionally, you can purchase life insurance through ULIPs, which enables you to accumulate money over time while protecting your loved ones from unforeseen circumstances. 











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