Updated July 17, 2023
Definition of Investment
Investments can be of many types. Individuals invest their hard-earned money to have financial stability and security for their future. The main types of investments are Investments in shares, property, Reserve cash and cash equivalents, and Fixed deposits. These investments are very common, and most individuals invest their money in them. An investor is open to lots of investment options. He is required to make an important decision regarding the investment to be made to earn better returns.
Types of Investments with Example
Types of Investments are given below:
1. Investment in Shares
Investment in shares is one of the common investment options for an investor. Some investors start trading at a very early age to understand the stock market and its conditions. The investor will have to ensure in which company they want their money to be invested. To know the market condition and the company’s return policy, the investors must do certain research work. The shares of the company can vary from time to time. The risk and return of the shares will also vary, which may confuse the investors; therefore, this is to be done after the research.
Example: Mr. X wants to buy shares of Z Ltd. The investor, Mr. X, must understand that he will also gain some rights with these shares. He will gain ownership of the company limited to that amount and the rights to obtain the dividends. For any purchase of shares nowadays, investors must open a demat account because, in most cases, the physical shares are banned. The investors are required to open a trading account, and from there, all the transactions related to buying and selling shares will be done.
2. Investment in Bonds
Bond investment is considered much less risky than an individual’s other investment. Investment in bonds can fetch fewer returns. Investments in bonds are like loans; when you are purchasing a bond, you are issuing money to the company, which is to be paid back with interest.
Example: Mrs. Y wants to invest her money in bonds. She will have to understand the prospectus of the company’s bonds and consider buying the bonds. Now Mrs. Y will have to understand that bonds will fetch yields, but it is also dependent upon the risk-bearing factors, and therefore, the idle way to assess the investment amount is to know the goals set for particular bonds. Mrs. Y should consult a broker for the buying of the bonds because they can guide in a proper manner and then invest her money to gain returns.
3. Investment in Mutual Funds
Mutual Funds are considered as one of the best investment options for individuals. The investment in mutual funds can be of a small amount as well. The investors are required to look closely at the investment’s progress and then consider further investment.
Example: Joe wants to know how to invest his money in mutual funds. He is a college-going boy and wants to invest some money from his pocket money to mutual funds. He can start investing from INR 500/-; in mutual funds, the investors can also invest in a low amount. The investment process of mutual funds is a little complicated for those new to this, and therefore, Joe should understand all the policies and the tax implication to earn returns. He will have to start from a small amount to see the implication of the mutual funds, and after a period of time, he can invest more money if he is comfortable with the mutual funds.
4. Investment in Exchange Traded Funds
Investment in Exchange Traded Funds is like index funds. The Exchange Traded Funds (ETFs) are traded in the stock market so that individuals can easily buy and sell the funds. An investor can gain from this type of investment considering the market factors. The value of this type of investment is increasing daily, and they are also gaining popularity.
Example: Mr. George is planning to invest in ETFs in India, so he is making all efforts to have market research. Investment in ETFs can be made online very smoothly. He will have to consult brokers for trading in ETFs. George can also take help from the brokers online but will have to check whether the broker is registered with the stock market. The stock market trades and influences the transactions, so the market should be closely watched.
5. Investment in Real Estate
Investment in real estate is one of the traditional methods of investment. An investor considers this investment safer and more productive than any other investment. They do some research and invest their money in real estate. This way, they own a property and can use it for any purpose, whereas when the market is high in demand, they may sell the property at the desired price to earn maximum returns possible.
Example: Mr. Chandrasekhar is a businessman and wants to know the implication of investing in a property i.e. real estate. He can have market research for genuine property and then invest his money. In the future, he can raise the rent from the property or sell the property if required.
6. Investment in Gold
Another investment for an individual is an investment in gold and ornaments. This is also considered safe planning for the future; hence, it will help the investor with some real commodities they can use.
Example: Mr. Rajiv is buying some gold ornaments since he learned that the price of the gold has fallen, so he can sell the ornaments in the future to gain returns.
There are many options for investors to invest in their desired areas. Investors are required to have proper planning and knowledge before investing to gain returns and they also have to consider the risk factors individually.
This is a guide to Types of Investment. Here we also discuss the definition and types of investments, an explanation, and an example. You may also have a look at the following articles to learn more –