Investment refers to purchasing an asset, keeping funds in a bank account or giving a loan with the hope of generating future returns. Different investment options are offering different risk return trade off. Analysis of the options and understanding of the concept help investor to build a portfolio which maximizes the return and minimizing the risk exposure.
Types of investments:
There are different types of investments:
- Cash investments: Cash investments like savings in certificate of deposit, bank accounts, and treasury bills. These investments give low interest rate and these are risky options in inflation period.
- Debt securities: In this investment there are fixed periodic payments and possibility of capital appreciation at maturity. This is more risk free investment than equities and safer. Generally the returns are lower than other securities.
- Stocks: Purchasing stocks means buying ownership of the business and you have the right to hold the share of the profits earned by company. These are more riskier and changeable than bonds.
- Mutual funds: Mutual-funds are collection of bonds and stocks. In this, you don’t have to bother about tracking the investment because it involves paying a professional manager to select specific securities for you. So this is first advantage of mutual-fund. There can be stock, bond or index-based mutual funds.
- Derivatives: Derivatives are financial agreements, the values of which are acquired from the underlying assets like commodities, stocks, securities and etc. on which they are based. Swaps, futures and options are different forms of derivatives. These are helpful to reduce the risk of loss arising from fluctuations in the value of the underlying assets.
And not only these, you can invest on commodities and real estate to get good returns.