Last Updated on February 20, 2023
Generally, people keep aside a part of their income as savings. They invest this saved money in financial products with the view to generating income or creating wealth in the future.
What is investment? Let’s understand!
Investment is the employment of funds on assets with the aim of earning regular income or capital appreciation. Investment has two attributes – time and risk, which should be kept in mind. For this purpose, ample investment avenues are available to invest in.
The investment decision making process is concerned with how an investor should proceed in making a decision about what investment avenues to invest in, how extensive an investment should be and what is the right time for investment should be made.
Investment is a complex process with respect to choosing the investment avenue with the expectation of returns with or without doing exhaustive analysis.
Investment Avenues
Investment avenues refer to the different alternatives or options through which an investor can channelize his/her money in a profitable manner.
Each avenue has its own features and characteristics. In some avenues, large funds are required, like real estate, while there are avenues in which investors can invest by putting a very small amount, like in mutual funds through SIP, or they can invest in stocks by putting funds in the stock market.
The gain from the investment is based upon the nature of the avenue. Some are riskier but the maximum return is gained from these investment avenues and some are safer than other investment avenues but provide low returns.
The selection of investment avenues must be done prudently and the objectives of making investment must be aligned with it. There are a wide variety of investment avenues available to invest in.
1. Blue-Chip/Large-Cap. Companies Stocks:
Stocks which are issued by blue-chip companies i.e. companies with a large market capitalization above Rs.20,000 crores and are well recognized as having sound financial performance.
They generally cost a lot as the companies have a good reputation in the market and high creditworthiness. The top 100 companies listed on Indian securities exchanges are categorized as large-cap companies.
2. Mid-Cap. Companies Stocks:
Stocks of companies whose market capitalization is between Rs.20,000 crore and Rs.5,000 crore. The stocks of mid-cap companies are more volatile as compared to large-cap companies.
These stocks are preferred by investors who seek better returns and are ready to take more risks. The next top 150 companies listed on Indian securities exchanges are categorized as mid-cap companies.
3. Small-Cap. Companies Stocks:
Companies with a market capitalization of less than Rs.5,000 crore. Companies that rank below 250th among companies listed on Indian securities exchanges in terms of market capitalization are the small-cap. Companies.
These stocks are highly volatile and are riskier than large-cap and mid-cap companies. Small-cap companies have the potential of generating high returns over the long term. These stocks have the very least liquidity.
4. Unlisted Companies Stocks:
These are those companies that are not listed on the Indian securities exchanges. These companies’ stocks are not traded on formal securities exchanges because they do not meet the listing requirements.
Unlisted company’s stocks are traded on the over-the-counter (OTC) market. These stocks are generally issued by new firms or by smaller firms.
5. Foreign Companies Stocks:
Companies based outside the boundaries of the nation issue stocks which are known as foreign stocks. Foreign stocks can be listed on various securities markets around the globe. These foreign stocks are traded in the form of Global Depository Receipts (GDR), American Depository Receipts (ADR), and also through Exchange-traded Funds (ETF).
6. Digital Assets:
It is one of the most popular investment avenues which is created as a replacement for hard physical assets. Digital asset is a type of asset that exists and is stored in an electronic form. The exchange of these assets can only be made through electronic media like computers, mobile phones or other designated medium specifically made for this purpose.
Digital assets may be unique or in large quantities depending upon the type and nature of the digital asset and, accordingly, the value of these digital assets may vary. Some digital assets like unique NFT may have high volatility while assets like centralized crypto-currencies have lower volatility than former.
Examples of digital assets are Non-fungible tokens, Crypto-currencies, Digital credit/debit cards, Digital wallet money (paytm, phonepay, Googlepay, etc.), Coupons and Vouchers available in electronic form and many more.
7. Exchange-Traded Funds (ETF):
It is a basket of securities that are traded on the stock exchanges. It has characteristics of both shares and mutual funds. The ETFs are bought and sold, so the prices fluctuate all day. It also has underlying assets that track/replicate a specific index like the BSE Sensex.
It includes all types of investment securities, including stocks, commodities, and bonds. ETFs offer a lower expense ratio and fewer broker commissions than buying the stocks individually.
8. Mutual Funds:
It is an investment vehicle (in the form of trust) to mobilize money from investors and create a pool of funds to invest in different financial instruments and securities. The various mutual fund schemes are professionally managed by asset management companies (AMCs). Investment is done by purchasing units of mutual fund schemes through SIP or in lump-sum amounts.
9. Fixed deposit:
It is an investment instrument that is offered by banks and non- banking financial institutions. In a fixed deposit, a lump-sum amount is deposited with the banks by the investors for a fixed rate of interest and for a fixed time period.
These are also called term deposits. Money cannot be withdrawn before the maturity period. If one wants to withdraw money before maturity, he/she has to pay a penalty for early withdrawal. An investor can also take a loan against the bank’s fixed deposits.
10. Recurring Deposit:
It is a term deposit provided by banks and non-banking financial institutions. In this, a fixed amount is deposited with the banks at regular intervals in installments for a pre-determined time period or maturity. The tenure is ranges from 6 months to 10 years.
11. Public provident fund:
This is a saving scheme offered by the government of India. It is an investment vehicle that enables the investor to build a retirement corpus while saving tax. The public provident fund is a fixed income investment avenue. The interest rate on the public provident fund account is notified by the central government every quarter.
A subscriber can deposit any amount between Rs.500 to Rs.1,50,000 in a financial year. Deposit may be qualified for the deduction under section 80-C of the Income-tax act 1961. Interest earned in a public provident fund is completely exempted from income tax.
12. Sukanya Samridhhi Yojana:
It is a deposit scheme for a girl child launched by the government in 2015 as a part of the “Beti Bachao Beti Padhao” campaign. It is a fixed investment scheme in which regular deposits are made and interest is earned upon deposits.
The Sukanya samriddhi account can be opened in the post office and branches of the authorized banks. The account in the scheme can be opened in the name of the girl child till the girl attains the age of ten years. To open an account in this scheme, a minimum amount of Rs.250 must be deposited and thereafter any amount in multiples of Rs.100 can be deposited.
A maximum amount of Rs.1,50,000 can be deposited in a financial year. The interest rate is notified by the government and will be calculated on a yearly compounded basis and credited to the account.
13. Senior Citizen Savings Schemes:
It is a scheme for senior citizens and for those who have retired from service to provide financial security in old age. An investor may open an account under this scheme individually or jointly with a spouse.
The deposit amount shall be in multiples of Rs.1000 and not exceeding Rs.15,00,000. The account can be closed after the expiry of five years from the date of opening of the account and may extend for a further three years.
14. Monthly Income Scheme:
This is an investment scheme for retiring persons and also for those who want steady income flow regularly. The maturity period of the scheme is five years. The amount can be deposited in the multiple of Rs.1000, with a maximum limit of Rs.4,50,000 in a single and Rs.9,00,000 in a joint account. The rate of interest is notified by the central government quarterly and payable on a monthly basis.
15. Company Fixed Deposit:
It is a saving cum investment tool in which the investor puts a deposit with the company or corporates for a fixed term with a pre-determined rate of interest. Financial institutions and non-banking financial companies (NBFCs) also accept such deposits. The company fixed deposits are governed by the Companies act 2013.
The deposits are usually given ratings by the credit rating agencies for their credibility. These are unsecured deposits. If the company defaults, the investor cannot sell the certificate of company deposit to recover his investment fund. Thus it is a risky investment option.
16. Bonds:
Are financial instruments issued generally by government agencies or by large corporates. A bond is a debt certificate which is secured by collaterals. Some assets are pledged as security, so if the issuer of the bond fails to pay the indebted value, the bond-holder can sell the assets and collect their amount.
Bonds are issued for a fixed period and a future maturity date on which the value of the bond is realized. The interest on bonds is paid at regular intervals, which are called coupons.
17. Debentures:
It is a financial instrument used for raising long-term funds and issued by private or public companies. It is an unsecured debt certificate with no pledged collateral.
The debentures are backed by the creditworthiness which is measured by the credit rating agencies and provides a certain credit rating to the debenture. It provides a higher rate of interest as compared to bonds as the debentures are unsecured in nature. Debentures can be convertible to equity shares.
18. Real Estate/Properties:
It is an illiquid asset and less volatile. Real estate is categorized as a growth asset. Transition costs are associated with real estate ownership, in the form of registration charges, stamp duties, and brokerage and are quite high.
Real estate could further be classified into various categories, which are land, residential real estate, and commercial real estate.
19. Real Estate Investment Trusts (REIT):
It is an investment avenue that allows individuals to invest in large-scale income-producing real estate. A REIT is a trust registered with the Securities Exchange Board of India. It allows investors to invest in large-scale properties through the purchase of stock.
In the same way, shareholders benefit by owning stocks in a company. The stockholders of a REIT earn a share of income produced through real estate investments without actually buying the properties.
20. Commodities:
It is an asset class that is commonly known and people consume many commodities like wheat, spices, vegetables, petroleum products such as petrol, diesel, or metals like gold, silver, aluminum, etc.
However, it is not possible to make investments in most commodities. For the purpose of trading, there are commodities derivatives available on many commodities and are traded on commodity exchanges.
21. Bullion:
Gold, silver, platinum, and other precious metals are categorized as bullion. The worth of bullion is determined by its mass and purity. It is available in the form of coins, bars, ingots, jewelry, ornaments and can also be bought in the form of electronic certificates. It is one of the most preferred investment avenues.
22. Foreign Currency:
Investment in currencies involves purchasing the currency of one country while selling the currency of another country. The trading of currencies is done through the foreign exchange market or FOREX market.
The transaction in foreign exchange is always done in pairs of currencies. One country’s currency is to be exchanged for another country’s currency. The investor gains from the fluctuations in exchange rates which result in a change in currency value.
23. Art and antiques:
These are investment options available to investors who have money that they want to put aside for the long-term. Art and antiques are generally illiquid with few buyers.
The movement in price is solely based on supply and demand. It is one of the least preferred investment avenues. Investment in rare and unusual art and antiques is a better choice as their value will appreciate over time.
Note: This article is for information purposes only as investment is a complex decision and it requires market awareness and in-depth research of various financial products available for the purpose of investment. Understanding the nature, working process, characteristics and different factors influence these investment avenues will help in determining whether we should make an investment or not. Keep patience and be prudent. Always consult your financial advisor before making any investment decision.
He is graduate in M.B.A Finance, and owner of the financial blog “Saifwealth.com“. He started this blog to share his knowdelge in the field of finance and to help people understand and aware about the financial world.
