New to investing? Here are five options

You just got a job. You distribute sweets; everyone congratulates. Once the line of questions about the job and the salary are done with, the next one starts; this one about investments. You are showered with advices about the need to invest early, invest safe, invest this and invest that.

You know the whys. But rarely are we told the hows and the wheres of investing. For that, you need to know about assets and investment vehicles.

Merriam-Webster defines an asset as ‘an item of value owned’. Investopedia says, it is ‘a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit’.

In simple words, asset is the money you have. It can be in various forms – cash, gold, commodities, real estate, and so on. Similar assets are clubbed into a single class; are traded in the same marketplace, and have common laws.

Also See: 10 schemes to invest in before March 31st

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1. Everyone rejoice! The exemption limit has been raised to Rs. 2 lakhs from Rs. 1.8 lakh.

The 30% tax slab now starts from 10 lakh rather than 8 lakh earlier. Men and women now have the same tax

... more 

1. Everyone rejoice! The exemption limit has been raised to Rs. 2 lakhs from Rs. 1.8 lakh.

The 30% tax slab now starts from 10 lakh rather than 8 lakh earlier. Men and women now have the same tax slab. No gender bias!

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Here’s a look at the five main investment options:

1)      Equities: This includes shares and derivatives of stocks. A company issues shares when it gets listed on the stock exchange. When an investor buys stocks, it means he owns a portion of the company. Equities are one of the most common investment options today and promise high returns – the profit you make while investing. However, they are also the riskiest options as stock markets are very volatile. Depending on the demand and the perceived value of the stock, the share price will either rise or fall over a period of time.

2)      Fixed-income: As the name suggests, assets in this class assure fixed, timely income. Any investment in fixed-income securities will provide returns through timely payments over a fixed period of time, by the end of which, you earn back the money invested along with interest. Unlike equities, fixed-income assets have low risk due to low volatility, but also promise lower returns. There are mainly two kinds of fixed-income assets -- bonds and bank deposits.

Corporates and governments issue bonds through which they raise money from the public, with the promise of timely payments. You are effectively lending some money to the company or government at a low rate of interest. It is thus called the debt market.

3)      Mutual Funds: Imagine a bus. You get on it to reach a destination along with other passengers. Each of you pay a sum for the service. This means, all of the passengers are pooling together funds to travel to a certain destination. Exactly the same way, a mutual fund is an investment vehicle where investors pool in money. Just like the bus, which stops at various locations, the mutual fund also invests in different asset classes like equities and bonds. Also, just like the bus driver, who knows the route the best, every investment decision of the mutual fund is taken by a professional fund manager.

Exchange-traded funds or ETFs also fall in this category. Loosely put, they are a type of mutual funds traded on exchanges.

4)      Real Estate: Houses, apartments and properties are important assets. Investing in this asset class can be very lucrative, especially in a growing country like India where property prices are shooting up every day. Unlike assets like cars and other consumer goods, the value of property usually appreciates with time. Moreover, it can also act as a source of regular income through rent. However, investing in real estate can cost lakhs, and sometimes even crores of rupees.

5)      Commodities: Apart from real estate, there are other tangible assets like gold, silver, or even livestock that can be invested in. These are commodities that are bought with the intention of making a profit by reselling at a higher value. There is an exchange dedicated solely for trading commodities. However, unlike realty, they come with a risk of depreciation. The recent fall in gold prices is a good example. Many also invest in art forms – paintings, sculptures, etc.

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