Most of the peoples got confused between Investments and Savings. They think the amount that has been saved from their salaries and deposited in a bank account, are investments. Here, one thing is needed to be cleared, that’s not an investment. The amount deposited in a bank is doing nothing for them and will liquefy quickly once they require it. [Read More about Saving and Investing]
Investment is an asset acquired to generate income.
The asset purchased with thinking that it will generate future income/profit. The investment includes the buying of shares of a company over the stock market, real-estate property that helps you to provide future profit in the long run after sell. [Read Also: How to build Best Income Generating Assets?]
In any business, if goods are required to produce other goods that also are an investment. Some investments are risky and some are moderate, where to invest depends upon the risk-taking capacity of an individual. To make a balance, a wise investor diversifies money into different types of investments.
VARIOUS WAYS OF INVESTMENT
# Real Estate Investment
# Mutual Funds/SIP Investment
# Investment in stock Market
# Conventional savings like saving accounts in the bank, FD, NPS savings
# Other investments like PF & EPF.
# REAL-ESTATE INVESTMENT
This term directly related to Real-Estate property. Property has been purchased with the intention of future cash flow as well as capital appreciation in future resale. It demands, initially, a high investment which suggests, it is not for the soft-hearted peoples.
Many variables make Real-Estate or property investing significantly profitable. If property is purchased in a good location, the value of the property will increase and can generate a considerable amount of profit. The value of property always increasing with time. Although, a good location property can generate more income than any other investment. Furthermore, it is more stable to generate fixed returns for investors.
Likewise, Investing in Real Estate or Property has its disadvantages too. It is capital intensive finding financing from lending institutions make investor results in more debt. If you purchase a property for flipping & it does not sell, you are stuck with the debt. Also, paying on the debt until the property does sell.
Even more, if you rent a property and tenant stopped paying his rent & you had to go through legally to remove the tenant. Owners of rental property are responsible for timely repairs. Repairs could result in major expenses. Taxes and insurance can also be quite expensive for rental property.
# MUTUAL FUNDS/SIP INVESTMENT
Investment in mutual funds or SIP gives us better results than conventional savings. Generally, we get the returns around 10-15 % which is higher than the conventional savings. SIP generally called Systematic Investment Plan which allows you to invest money in mutual funds or the share market.
Because the share market is volatile, SIP helps to buy the shares when the market is up or down as well. Hence, SIP averages the prices that you invest and helps to provide very good returns in the long run. You should never be bothering if the returns in SIP/Mutual Funds are showing negative in initial years.
Therefore, these are the safer kinds of investments compared to the share market. Risk is medium and returns are also medium but way better than conventional savings. Investment in these schemes can be done monthly, quarterly, half-yearly or yearly basis. Entry & Exit can be done at any point in time.
Even more, there are such schemes where the lock-in period at-least 3 years minimum. Mutual funds are gaining popularity for a few years. This kind of investment can give optimum returns while invest in different conventional savings.
# INVESTMENT IN STOCK MARKET
Investing in the Share/Stock market involves high risk when compared to other options because it is more volatile. But you will get higher returns from any of the other investment options. Even more the returns you will get around 15-20%. But as India is the fastest developing nation in the world & has huge potential to grow, you will find a promising market. There is a 100% chance of higher returns around 20-25% compounded annually. [More at What is Stock Market in India?]
This is clear that returns that we are expecting for our future are from investment in the stock market only.
But always remember that this is a high-risk option with a very high rate of returns. High risk is only for those peoples who enter without proper knowledge or not done any fundamental analysis.
A fact in comparison b/w US and INDIA that, 40% of US peoples investing in the stock market and become rich but in INDIA due to lack of knowledge or bad rumors about stock market only 2% of peoples invest and become rich.
Numerous benefits of the stock market are covered in other sections. When you buy a company’s stock, you buy ownership of the company that allows you to participate in the company’s growth. Stocks in the share market are ideal only for long term investors who can face the risk hurdle to become the wealthiest people in the country.
# CONVENTIONAL SAVINGS
It is not an investment but most people consider it an investment. Savings account in banks, fixed deposits in bank or saving in any other financial institutions can only give you the returns from 1% to 7.5%.
This is a kind of traditional saving technique that we have received from our past generations to get the lump sum amount after 5-10 years. If we relate these conventional savings with inflation rate i.e. 7.5 % currently in India & the returns that we are getting from these savings are also up to only 7.5%. So, after 5-10 years the actual values of our returns on investments are the same as we started.
So returns are almost negligible in these savings. These savings are ideal for conservative investors who stay away from risks or wanted to be safe. Additionally, these are also tax saving variants that come with a lock-in period where you cannot take your money out. Please note that this is not an investment because it is not giving you any considerable amount of capital appreciation.
# OTHER INVESTMENTS LIKE PPF & EPF ETC.
The PPF is a public provident fund and EPF is employer provident fund. These kinds of investments are fixed tenure investment & best suitable for long term or retirement. They come with a fixed span of lock-in period where the amount saved or invested cannot be withdrawn before completion of the lock-in period. If the amount withdraws before time, the investor has to compromise with plenty.
The benefit of these investments is that the amount withdrawn at the end of the investment period is completely tax-free. PPF allows loans & partial withdrawals after certain conditions have been met.
Employer Provident Fund comes under section 80C, EPF deductions are typically a part of an employee monthly salary & same amount by the employer as well. The rate of returns on EPF and PPF is decided by govt. of India every quarter.
In the end, I will only say you should know the ways through which you can invest your money and grow. As clearly mentioned that putting your hard-earned money on banks gives you nothing. They just provide the amount which equals the inflation rate. Our motive should beat the inflation rate and achieve financial freedom.