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WHY INVESTING IS IMPORTANT & WHERE TO INVEST ?
Investing means purchasing an asset with the anticipation that it will yield more returns in the future. The benefit can be either in terms of regular income or an increase in the asset’s value.
A farmer having seeds can either decide to keep them safe for the winter or sow them on the fields and reap the season’s harvest.
If he chooses to keep the seeds, he is merely saving it for times of need and will have the same amount of produce that he has now.
Whereas if he decides to sow the seeds on the fields, he is investing those seeds in anticipation of higher yield in the future. The farmer’s investment might bring him a ten-fold return, of which he can keep what is needed and sell the rest for profits.
Importance Of Investments
In today’s world, just working hard and earning a salary is not enough. There are many reasons as to why you should put your hard-earned money into investments, such as:
- Compounding your money
- Earning a secondary source of income
- Tax Benefits
- Meeting your financial needs and goals, etc.
What is Inflation?
Think about the cost of your favourite chocolate during your childhood and compare it to its price today – it must be at least two to three times higher than it was years ago. This is the effect of inflation.
Inflation is the average change in the price of commodities and services over time.
If you had kept aside the money required to buy a bar of chocolate ten years ago and forgot about it – you would now have less than half the money needed to buy it because the price of that chocolate would have gone way up.
That is how inflation eats up your money, and you end up losing it without even spending it.
But here’s the good news:
You can have the upper hand over inflation if you invest your money. Your investment will grow over time, and the returns earned from it can undo the negative impact of inflation.
So, we have established the fact that investments are essential, but where can one invest?
Various Types of Investments
An investor has a wide range of investment opportunities to choose from. Some traditional investments have been passed on for many years, while newer and more popular investment options are also available. Some of them are:
This yellow metal is placed at the highest investment value among all the metals available because of its non-corrosive nature and rarity. Factors such as increased liquidity and inflation-beating capacity have established gold as one of India’s most preferred means of investment.
Though there are some fluctuations in the gold rates from time to time, long term investment in gold has historically seen high returns so far. Investors view it as a “safe haven” asset – one which people turn to protect themselves during periods of economic uncertainty.
Gold investment can be made in many forms, such as buying jewellery, coins, bars, gold exchange-traded funds, Gold funds, sovereign gold bond schemes, etc.
Cryptocurrencies are the newest class of assets added to the list of investment vehicles.
They are digital assets used as a medium of exchange. Compared to the other asset classes, cryptocurrencies are fully decentralized – meaning it functions without any central authority. No individual or entity can control or influence its price, but only the market’s demand & supply dynamics.
Cryptocurrencies have shown great promise since their inception. For example, Bitcoin – the first cryptocurrency introduced in 2009 started trading at $0.0001. Its value has grown million fold in a decade and is currently worth over $10,000.
Having said that:
Cryptocurrencies are more volatile when compared to all other asset classes. Nevertheless, it has rewarded its risk-taking investors greatly over the years.
There are over 7,200 cryptocurrencies traded in the market. CoinSwitch Kuber platform offers 50+ currencies, including some popular cryptocurrencies such as Bitcoin, Ethereum, Ripple, etc.
#3. Fixed Income
Fixed Income investment vehicles such as deposits, government bonds, etc., are offered by banks and other financial institutions.
They are specific and locked in for a predefined period. Investments in fixed income can fetch you a definite and limited return, with some assurance on the capital. However, the returns are usually relatively low.
The Government has currently cut down the interest rates, which has further brought down the return on such deposits. These investments are suitable for someone who would prefer less risky and secure means. But the biggest drawback of FDs is that on average, they don’t even beat inflation.
#4. Mutual Funds
The term, Mutual fund has been around for quite a while. It generally works as an investment vehicle. Many investors pool in their money and invest it into various financial instruments such as stocks, bonds, debt instruments, etc.
These funds are expected to generate more wealth, depending on the market conditions. There are several mutual funds available in the market, created to suit the needs of various investors. You can purchase them directly from a Mutual Fund house, Banks, or a brokerage firm.
For example, SBI Small cap Funds, one of the popular mutual funds, have given a total of 29.65% over the past five years.
When you buy a stock of the company, you are purchasing a piece of the company itself and become a shareholder in that company. Thus, if the company is profitable, you are entitled to a portion of profits owned by you.
Stocks have dominated the investments world by yielding high returns.
The stock market can, however, be volatile and risky. But, if you invest in strong businesses, there are good chances of earning higher returns. For instance, Nifty50, the top 50 blue-chip stocks of India, has yielded 47.13% returns in the last five years.
Having said that, you should know that this is not investment advice but merely a suggestion. Investing in stocks requires good knowledge of the markets. Extensive research needs to be conducted before making such investments.
Whether you are a low-risk seeker or a high return seeker, the first step towards your investment plans should be to choose the right kind of investment.
Some of the points to keep in mind before making investments are:
- Only invest what you can afford to lose in any asset class.
- Be sure to do adequate research before selecting the investment.
- Stay away from schemes that promise quick cash in a short time frame.
- Review your investments periodically and calculate your net worth.
Now that you have a fair idea about investments, I wish you to find the right fit for your investment portfolio to achieve your financial goals.
Happy Investing! source : coinswitch