Most of us are aware of the most common investment instruments are Mutual Funds and Equity(Stocks or Shares). But these are just some of them. Today in this article, we will explore other options as well.
Mutual Funds
One of the best investment options for beginners. I recommend everyone to start investing in mutual funds before investing directly in stocks because
1)Mutual funds are less risky when compared to stocks.
2)Mutual funds allow diversification
3)Research is done by fund managers. So we don't have to spend our time researching.
4) Underlying assets are reviewed periodically.
What we mean by this?
We will discuss this in the latter part of this post. Before that, we will discuss the different types of Mutual Funds available in the market.
Equity Funds
This fund invests a significant part of our cash in equity segments, i.e., Stocks. They generally have an exit load. i.e., AMC will charge you for withdrawing the amount before some specified time. This charge varies based on AMC and Fund. Generally, it is 1% if withdrawn within 1 Year. There are basically four types of equity mutual funds.
Large-cap
They invest a minimum of 80% of their total assets in stocks of large-sized companies.
Multi-Cap
They invest 65% of their total assets in stocks of large, mid, and small-sized companies.
Mid Cap
They invest 65% of their total assets in stocks of mid-sized companies.
Small-Cap
They invest 65% of their total assets in stocks of small-sized companies.
Sector-based
These funds invest most of their money in companies of a particular sector. For example, Technology Equity Funds invest in companies like Infosys, Tata Consultancy Services, HCL Technologies, Bharti Airtel, Just Dial, etc... In contrast, the Banking and Financial Services Fund invests its money in banking sector companies like HDFC Bank, ICICI Bank, Indusind Bank, State Bank of India, etc.
Equity Linked Saving Scheme (ELSS)
These are tax-saving funds that provide deductions up to Rs 1.5 Lakh per year under section 80C of the Income Tax Act. These provide equity-like returns but have a lock-in period of 3 years. Even if there is an emergency, you won't be able to withdraw the same before 3 years.
Index Funds
These funds track the composition of a popular benchmark such as Nifty50, Nifty Midcap, Nifty SmallCap, etc. Some international index funds follow standards like S&P500, NASDAQ, etc. These funds generally have a lower expense ratio when compared to other types of funds.
Debt or Liquid Funds
They have the potential to perform better than fixed deposits over an investment period of 1 year. The advantage of debt or liquid funds is that there is no lock-in period, and there is no penalty on premature withdrawal generally after 7 days. It can vary depending upon the funds.
Stocks or Equity
Investing in stocks is like you're buying ownership of a company. You may get dividends from companies in which you're investing in it with reasonable reserves, and profit grows Year-Over-Year. Not all companies give dividends; usually, companies with good profit offer dividends.
Before investing in stocks, do thorough research on the company's fundamentals in which you're planning to invest, like Profit Growth, Sales Growth, the Debt of the company, and future growth potential being some of them.
Sovereign Gold Bonds
If you're planning to invest in gold for the long-term, like 5-10 years, SGBs are the best of their kind. Gold has always been a favorite asset class of every investor. It carries low risk, high liquidity, and moreover, gold is only in limited supply.
So what's the advantage of SGB over physical gold?
1) No risk of getting stolen
2) No extra making charges
3) SGBs provide an interest rate of 2.5% per annum
4) Records are stored in the Demat account. So it's safe and secure.
