Definition of Investment
Investments can be of many types. An individual invests their hard earned money for their future to have financial stability and security. The main types of investments are Investment in shares, Investment in property, Reserving cash and cash equivalents, Investment in Fixed deposits. These investments are very common and most of individuals involve their money in these investments. 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 of the investors start trading at a very early age to understand the stock market and its conditions. The investor will have to make sure that in which company they want their money to get invested. To know the market condition and the company’s return policy the investors are required to 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 and hence it may create confusion in the minds of the investors and therefore this is to be done after the research.
Example: Mr. X wants to buy shares of Z Ltd. The investor Mr. X will have to understand that he will be gaining some rights as well 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 are required to open a demat account because in most of the 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 of shares will be done.
2. Investment in Bonds
The investment in bonds is considered very less risky than any other investments which an individual do. The investment in bonds can fetch fewer returns. The investment in bonds are like loans when you are purchasing a bond that time you are issuing money to the company and 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 bonds of the company and will have to consider buying the bonds. Now Mrs. Y will have to understand that bonds will fetch yields but it is also depended upon the risk bearing factors and therefore the idle way to assess the amount of investment is to know the goals which are 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 have a close look at the progress of the investment and then consider further investment.
Example: Joe wants to know how can he 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 invest in the low amount as well. The investment process of mutual funds is a little complicated for those who are 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
The investment in Exchange Traded Funds is like index funds. The Exchange Traded Funds (ETFs) are traded in the stock market so that individuals can buy and sell the funds easily. An investor can gain from this type of investment considering the market factors. The value of this type of investment is increasing day by day and they are also gaining popularity.
Example: Mr. George is planning to invest on ETFs in India so he is making all the efforts to have market research for the same. Investment in ETFs can be done 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 that whether the broker is registered or not with the stock market. The transactions are traded and influenced by the stock market and hence 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 as safe as and more productive than any other investment. They do some research and invests their money in real estate. This way they own a property and can use it for any purposes whereas when the market is high on 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 the genuine property and then he can invest his money. In the future, he can raise the rent from the property or he can sell the property if required.
6. Investment in Gold
Another way of investment for an individual is an investment in gold and ornaments. This is also considered as safe planning of the future and hence it will help the investor with some real commodity which they can use in the future.
Example: Mr. Rajiv is buying some gold ornaments since he came to know that the prices of the gold has fallen and by this way 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 at an individual basis.
This is a guide to Types of Investment. Here we also discuss the definition and types of investments along with an explanation and example. You may also have a look at the following articles to learn more –