Types of Investment Plan
Don’t put all your eggs in one basket.
Before we talk about investment options, let's understand what is an investment plan? Investment plans are financial instruments that help you to create sustainable wealth for your future needs and uncover opportunities to increase your financial worth.
The investment products can be broadly classified into two types — financial and non-financial assets (like real estate and physical gold). In this article, we are going to talk about some of the financial assets and how they will help you diversify your investment portfolio.
1 — Stocks
When we talk about investments the first thing that comes to our mind is stocks. What is a stock? When you purchase a stock, you’re buying a share (a small piece) of that company’s earnings and assets. When you purchase a share, you become a part-owner of the company and stand to gain a part of the profits.
Stocks are volatile assets, the value of the stock is affected by various factors like economy, company’s performance, political scenes, and other stock market indices. But if invested right, they generate higher returns and dividends than most other forms of investments.
2 — Bonds
Bonds are a financial instrument where you, as an investor, give a loan to a company or the government. When you buy a bond, you allow the bond issuer to issue you a fixed interest rate in exchange for using your capital. Bonds are generally considered less risky than stocks, but they also may offer lower returns. Bonds are issued by municipalities, government agencies, and corporations.
3— Mutual Funds
If you are someone who doesn’t have a lot of time to research which stocks to buy, or which bond to pick. Or the idea of making the wrong choice is holding you back from starting your investment journey then a mutual fund is what you are looking for.
Mutual funds are financial instruments that pool the money from various investors to invest in securities such as stocks, bonds, or other assets. They employ a professional manager to make the investment decisions and decide where and which financial instrument to put the money in. The market performance of the fund’s underlying assets decides your returns. You can either invest a lump sum amount or have a periodic SIP (Systematic Investment Plan).
There are many types of mutual funds to choose from like equity funds, liquid funds, debt funds, hybrid funds, index funds, and tax-saving funds. I will explain the type of mutual funds and other terminologies related to them in the next article.
4 — Fixed Deposit
FDs are the safest investment options available to investors. It allows investors to invest lump-sum amounts for a specific duration and a fixed rate of interest. The interest rate is low as compared to other investment options but it is unaffected by market fluctuations, which ensures greater safety of the investments.
5 — Public Provident fund
PPF constitutes a significant part of your retirement corpus. It is a long-term investment scheme popular among individuals with a low-risk appetite and who want a stable return. What makes it popular is that this plan is mandated by the government, it is backed up with guaranteed returns to protect the financial needs of the investors. Like FDs, invested funds in the PPF account are not market-linked.
6 — Insurance
Insurance products are often a part of a financial plan. They are helpful if you're interested in providing a measure of security for you and your loved ones. Insurance comes in various forms like term insurance, life insurance, endowment plans, child plans, etc. Insurance products are developed to meet particular objectives. For instance, life insurance is designed to meet your expenses as you age, whereas term insurance is designed to aid your beneficiaries in the unfortunate event of your death. One of the many reasons why people prefer to invest in life insurance is because of its tax-saving aspect.
