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| Different modes of investments |
There are many ways to invest your money, stocks and bonds are the most types people hear of in TV channels and agents, but there are a ton of different ways to invest your money - mutual funds, Cash deposits, real estate and the list goes on... It depends on your objective to decide which investments are suitable for you, based on their characteristics. Before making any investments you should be aware of a checklist that I had suggested in my post here: 12 points one should take care while Investing .
Options for investments:
There are two major options available for investment. they are
Physical assets like real estate, gold/jewellery, commodities etc.
Financial assets such as fixed deposits with banks, small saving instruments with post offices, insurance / provident / pension fund etc. or securities market-related instruments like shares, bonds, debentures etc.
Short-term financial options
Any assets that are anticipated to expire or to be liquidated within the course of 1 to 3 years is termed as Short-term investments. Here I point out few short-term investments options and their characteristics.
1. Savings Bank Account
Usually It is the first banking product people use, this offers low interest of something around 4 - 5% p.a., which is marginally equal to fixed deposits.
2. Term deposits
Fixed Deposits with Banks are also referred as term deposits and minimum investment period for bank FDs is 7 days. These deposits with banks are for investors those who prefer to take no or low risk, and might be considered for up to 10 years. Normally interest earned from such deposits is likely to be lower than the returns of money market fund.
3.Money Market or Liquid Funds
These are specialized form of mutual funds that is extremely short-term fixed income instruments and provides easy liquidity. Unlike most mutual funds, money market funds are primarily oriented towards protecting your capital and then, aim to maximize returns.These funds usually yield better returns than savings accounts, but lower than bank fixed deposits and carries certain risks.
Long-term investment options
In general, long term investments are physical or financial assets that matures in more than 10 years.
Post Office Savings
Post Office Monthly Income Scheme is a low risk saving instrument, which can be availed through any post office. It provides an interest rate of around 8% per annum, which is paid monthly. More details about MIC can be found here Monthly Income Scheme (MIS) Account.
Public Provident Fund
PPF is a long term savings instrument with a maturity of 15 years and interest payable at 8% per annum compounded annually. A PPF account can be opened through a nationalized bank in India at anytime during the year and is open all through the year for depositing money. Tax benefits can be availed for the amount invested and interest accrued is tax-free. To know more visit Public Provident Fund Account
Company Fixed Deposits
These are short-term (six months) to medium-term (three to five years) borrowings by companies at a
fixed rate of interest which is payable monthly, quarterly, semiannually or annually. They can also be cumulative fixed deposits where the entire principal along with the interest is paid at the end of the loan period. The rate of interest varies between 6-9% per annum for companies. The interest received is after deduction of taxes.
Bonds
It is a fixed income (debt) instrument issued by companies or government for a period of more than one year with the purpose of raising capital. It is generally a promise to repay the principal along with a fixed rate of interest on a specified date, called the Maturity Date.
Mutual Funds
These are funds operated by an investment company which raises money from the public and invests in a group of assets (shares, debentures etc.), with a set of objectives. It is an alternate for those who are unable to invest directly in equities or debt because of constraints such as resource, time or knowledge. Mutual fund units are issued and redeemed by the Fund Management Company based on
the fund's net asset value (NAV), which is determined at the end of each trading session. NAV is calculated as the value of all the shares held by the fund, minus expenses, divided by the number of units issued.
These are some of the modes/ options through which one can make their investments. The above mentioned instruments are commonly used in India and similar products are available in other countries too. So you can verify whether such instruments are available in your country. similarly, the interest rates differ from one to another country too.
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