How many types of investments are available in India?
Let’s answer this question using a daily life example.
Choosing from different types of investment in India can be similar to buying clothing for different weather conditions. During the rainy season, you need something that will dry quickly. For winters, you might look for something that can keep you warm and covered, like wool. And for summer, you might feel at ease with the light linen or cotton fabric.
Similarly, your investment needs can also differ for different goals.
For rainy days or emergencies, you need an investment that you can quickly convert into cash. For your sunny days or goals like retirement planning, you require years of wealth building. So, you might look for a high-return-generating long-term investment. Similarly, you might choose a short-term investment for goals like your outstation vacations.
But what are these types of investments?
For simplicity, you can divide some of the popular types of investments in India into four broad categories. These are equities, debt, mutual funds and traditional investments.
Let’s learn about each one of them in detail.
You might have heard stories of someone you know making a windfall and another losing a lot of money by investing in equities. Equity investments are considered riskier than other types of investments like debt, mutual funds and other traditional investments.
The risky nature of this investment is because the prices depend on the emotions of the stock investors. You might be wondering the reason behind this. Here’s a fact, the price of a stock can go up or down due to buying or selling stocks. This buying and selling of stocks are called trading.
Now, let’s relate the prices of stocks with vegetables, say tomatoes. The demand exceeds the supply when there is a scarcity of tomatoes in the market, maybe due to lower farm produce, floods, or any other factor. Therefore, the prices tend to increase, making them expensive. Similarly, the prices decline when there is bumper produce.
In stocks, when a large number of investors are optimistic about the company’s growth, they buy its shares. This creates a high demand for stocks, ultimately increasing their price.
Similarly, the investors can feel sceptical about the company's growth if there is economic uncertainty, like floods and war. In such instances, they redeem their equity investments by selling their shares. This brings down the demand for the stock, thereby decreasing its price.
The rapid movement of share prices in a short period is called volatility. Since it is impossible to predict the short-term market volatility, these investments are considered risky.
If you want to invest in equities, you can use your investment account. You might be thinking about an investment account is which type of an account? Your equity investment account is your Demat account. It is just like your regular mobile banking wallet, where you can transfer money and use it for buying shares.
Have you ever borrowed from a bank or bought something online on EMI? You might have paid a fixed interest rate and returned it with the principal amount. Like you can take a loan, private and government companies also take loans.
These loans are collectively taken from the public as debt investment. Therefore, when you invest in a debt investment, you are lending money to an entity that uses it for meeting expenses and growth.
Like any other loan, debt investment has a defined purpose, interest or returns and a maturity period. Once the maturity period is over, you get back your invested principal amount and interest.
The interest rate on debt investments is fixed, called the coupon rate. Furthermore, the interest amount on your debt investment is called yield. Let’s understand coupon rate and yield through an example.
Suppose you have invested ₹1 lakh in a debt investment at an interest rate of 10%. Here, 10% is your coupon rate and 10% of ₹1 lakh = ₹10,000/- is your yield.
Since the returns in terms of interest rates are fixed, these investments are considered less risky than equity investments.
Say you want to invest in both equity and debt, but you do not want to get into selecting each one of them. In this case, you can choose a pre-designed package of investments. This package of multiple investment types is called mutual funds. By investing in mutual funds, you can invest in stocks, bonds, gold and even other mutual funds without choosing each of these investments separately.
These investment packages are managed by fund managers and offered by different fund houses called Asset Management Companies (AMCs). The risk and returns of mutual funds depend on their underlying investment. For example, an equity-based mutual fund can be riskier than a mutual fund investing in debt or gold. Based on their risk profile, you can choose mutual funds that would suit your various goals.
For example, if you want to invest for your retirement, you can invest in funds that can help you accumulate wealth over time, like equity-based mutual funds. On the other hand, if you wish to invest for short-term goals, you can invest in funds that can offer you stable short-term returns, like debt-based mutual funds.
Further, if your goal is to plan for emergencies, you can invest in a liquid mutual fund. A liquid fund is a debt-based mutual fund that can be redeemed quickly. Therefore, they can help you build a robust emergency corpus.
Like your diet, your mutual fund investments can also vary depending on your age. For example, when you are young (between 25 to 35), your investments can majorly comprise equity-based mutual funds and long-term goals. This is because your risk appetite is higher. This also happens to your food habits. When you are young, you tend to digest food quite easily due to a better appetite.
As you age, your digestive system weakens, making it difficult for you to digest junk food. Similarly, with the number of dependants in your family increasing, whether due to your parents’ retirement or the birth of children, your appetite to take investment risk declines. Therefore, you can benefit by increasing the proportion of stable and less risky mutual fund investments. These can be debt-based mutual funds.
Mutual funds offer investment choices for various goals, age groups and risk tolerance. This makes them a more popular choice than equities or debt. You can use your Fi Money account to invest in various mutual funds.
Starting a SIP using the Fi Money app is simple. You can use the app to start SIPs of any amount and duration in a mutual fund of your choice. For example, you can set up a FIT SIP to invest ₹10,000 on the 15th of every month in a Nifty 50 index fund.
You might have heard about Fixed Deposits, buying gold, or investing in real estate from your parents or relatives. Since these investments existed before equities, debt and mutual funds in India, these are called traditional investments.
Mostly, these investments are less liquid. Therefore you cannot convert them easily into cash. For example, fixed deposits have a pre-determined maturity period. Similarly, gold must be converted into cash by selling to a jeweller. Here the making charges can be deducted, and you get returns based on the gold’s current value. For real estate, like buying a flat for investment, you can either earn rent or sell it after a long period.
One of the standard features of these investments is their lower risk profile. Most traditional investments have certain limitations regarding liquidity, returns and goal-based planning.
Your Fi Money account is designed to simplify your investment journey with these investments.
The Fi Money account enables you to create named Jars for your saving goals. With this, you can start saving in short and long-term deposits to meet various goals.
There are numerous types of investment in India. Some popular ones are equity, debt, mutual funds and traditional investments like fixed deposits, gold and real estate. While traditional investments can be less risky, they might not fit perfectly to all your financial goals. Furthermore, direct equity investments can be risky and involve a lot of time and research. Also, direct debt investments can be expensive.
Mutual fund investments can overcome these limitations and offer you a package of these investments developed by market professionals. You can choose suitable mutual funds that suit your financial goals, making them one of the popular investments in modern times.
If you wish to make small but regular investments, you can invest in mutual funds. These are a package of investments like stocks, bonds, gold and more.
You can invest in mutual funds through SIP (Systematic Investment Plan) or lump sum. You can invest an amount as low as ₹100 per month in SIP.
As a beginner, you can start by investing in mutual funds. Just make a list of your financial goals first. These goals must be SMART.
Once you have listed your goals, you can divide them into short-term, medium-term and long terms. Mutual funds offer suitable investments for each of these goals. For example, you can invest in lower-risk funds for short-term goals. For medium-term goals, you can invest in funds that have moderate risk. Lastly, you can invest in funds with a higher risk profile for long-term goals.
The riskometer represents the risk profile of mutual funds. Based on the riskometer, mutual funds can be divided into low risk, moderately low risk, moderate risk, moderately high risk and high risk.
A fund’s risk profile is transparently stated in the fund’s information document. Thus, by knowing your goals and the fund’s risk profile, you can begin to invest.
You can use your Fi account to invest in various mutual funds. Starting a SIP using FIT rules can be quick and simple. Just set up a SIP by simply instructing us to invest an amount of your choice on your preferred date every month in a mutual fund of your choice.
You can invest in different investments based on your knowledge, risk tolerance, and goals.
In fixed deposits, you can invest for a fixed maturity period and earn a fixed interest on your investment.
Traditional investments are less riskier than equity, debt and mutual funds.
You can use your Fi account to invest in various types of investments. With the help of Jars, you can segregate your goals and save in terms of short-term and long-term deposits. For mutual funds, you can use the FIT rules to start a SIP and invest an amount at your preferred time of the month in any type of mutual fund.
You can invest in any of the above investments based on risk tolerance and return expectations.