From stocks and bonds to real estate and even collectables, there are many ways to invest your money. Some are high risk and high reward, and others provide moderate but stable returns.
To choose the right investment vehicles for your portfolio, you’ll need to understand how they work and what they have to offer. In this guide, we’ll go over the most common types of investment vehicles and their pros and cons.
What is Investment Vehicle?
Investment vehicle is a method or tool that allows you to invest your money. Think of it as a vessel that helps you navigate the vast sea of investment options. From stocks and bonds to mutual funds and real estate, these vehicles provide different opportunities for growth and diversity in your portfolio.
Factors To Consider Before Choosing An Investment Vehicle
There are a variety of investment mediums available in the Indian and foreign market. However, to choose the precise investment vehicle for self, depends on multiple factors.
- The investor’s market knowledge
- Financial investing expertise
- Risk tolerance
- Financial goals
- Present financial situation
Types of Investment Vehicles
Once you have considered the factors of choosing an investment vehicle it is time to leran the types of investment vehicles that are available.
There are several types of investment vehicles. Most investors focus on a few key types that best fit their current financial situation and goals. The diverse investment vehicles list below covers the kinds of vehicles you should know about and how they work.
Often referred to as “equities, ” stocks are a type of security. Stocks offer its investors or the stockholders a share of ownership in a company in which they have invested their funds.
Shares are the units of stock. It entitles its owners to a share of the company’s assets and income in proportion to the number of shares they possess. Most individual investors’ portfolios are built on stocks, which are mostly bought and sold on stock exchanges.
Stocks are perhaps beneficial in raising the capital appreciation. It happens when the price of a stock increases. Another advantage of investing in stocks is the shareholders usually receive profits in the form of dividends. Dividend payments are made when a corporation gives stockholders a portion of its earnings.
Mutual funds have been around for the past few decades, and are gaining popularity amongst millennials. A mutual fund pools investment from various individual and institutional investors who have a common investment objective.
The pooled sum is managed by a finance professional called the fund manager, who invests in securities and assets to generate optimum returns for investors. Mutual funds are broadly divided into equity, debt and hybrid funds. Equity mutual funds invest in stocks and equity-related instruments, while debt mutual funds invest in bonds and papers.
Hybrid funds invest across equity and debt instruments. Mutual funds are flexible investment vehicles, in which you can begin and stop investing as per your convenience. Any individual may consider investing in mutual funds.
You don’t need to have time or knowledge to invest in mutual funds as the fund manager takes care of portfolio constitution, and you only have to invest. However, it is advisable to invest in only those funds whose risk levels and objectives match yours.
The returns are not guaranteed as they are dependent entirely on the market movements. Note that past performance of a fund does not indicate future returns.
Exchange-Traded Funds (ETFs)
Similar to Mutual funds, an ETF is a pooled investment security called an exchange-traded fund (ETF).
ETFs often follow a certain sector, index, commodity, or other asset. However, unlike mutual funds, they can be bought or sold on a stock exchange just like the usual stocks.
Anything from the price of a single commodity to a sizable and varied group of securities can be tracked by an ETF. They may even be designed to follow particular investment strategies.
ETF share prices fluctuate throughout the day as the ETF is purchased and sold.
ETFs incorporate bonds, stocks and commodities, etc. They are more liquid funds in comparison to the mutual funds and are cost effective as well. Unlike stocks, which only hold one underlying asset, ETFs hold a variety of underlying assets.
ETFs are frequently used for diversification because they contain a variety of assets. Thus, diversification of investments, including stocks, commodities, bonds, or a combination of investments, can be found in ETFs.
Bonds function as a particular kind of debt. They are safe investment instruments as they are government based securities. However, they offer a lesser return than many other financial instruments.
Bonds are fixed-income securities that are loans from investors to borrowers mostly corporate and governmental. Companies, municipalities, states, and sovereign governments utilize bonds to finance operations and initiatives. Bondholders are the issuer’s debtors or creditors.
Bond specifications typically include the terms for variable or fixed interest payments made by the borrower, as well as the end date by which the principle of the loan is expected to be paid to the bond owner.
There are numerous varieties of bonds such as Corporate Bonds, Municipal Bonds, Treasury bonds and Agency Bonds.
REITs are similar to stocks as they can also be traded on the Stock Exchange. It is a business that owns, manages, or finances income-producing real estate. It involves a pool of funds from multiple investors who are not interested in dealing with the property management. So, individual investors can now benefit from income from real estate investments without having to invest in, manage, or finance any real estate themselves.
90% of a REIT’s profits are required by law to be paid out as dividends to shareholders.
REITs might be viewed as an alternative to buying a residential investment property given the continually escalating cost of real estate while also earning you money.
A cryptocurrency is a digital asset that employs cryptography to store transactions in an immutable ledger called a blockchain. Most use a distributed network of computing devices to confirm transactions. While cryptocurrency started with Bitcoin, there are now thousands of cryptocurrencies.
Cryptocurrencies are extremely volatile. Some fortunate speculators have made huge returns on them, but far more have lost money. Crypto markets are also a hotbed for scams, since cryptocurrencies aren’t regulated like stocks are.
Many investors would argue that speculation in cryptocurrency isn’t an investment at all. There are no hard facts about a cryptocurrency that can inform you as an investor. No corporate balance sheets, no government credit rating, and no intrinsic value beyond what other speculators think your ownership is worth.
FAQ: Investment Vehicles In India
What are the 4 popular types of investments in India?
Mutual funds, stocks, real estate, fixed deposits among many other are available investment modes in India.
What are the two types of investment vehicles?
Investment vehicles include individual securities such as stocks and bonds as well as pooled investments like mutual funds and ETFs. Investment vehicles can be categorized into two broad types: Direct investments. Indirect investments.
What are the 3 major types of investment styles?
The analysis process often depends on the investing style you’re employing. We’ll briefly look at three different styles of investing: value, growth, and income. Though this course focuses heavily on value investing, you may incorporate one or all these styles into your own investing strategy.
Investing in India offers a wide range of opportunities, but it’s essential to choose the right investment vehicle that suits your financial goals and risk tolerance. By considering factors such as your investment horizon, liquidity needs, and tax implications, you can make informed decisions and maximize your returns.
Whether you’re interested in stocks, mutual funds, real estate, or other investment options, there is something for everyone in the Indian market. Remember to do thorough research, seek advice from financial professionals if needed, and diversify your portfolio to minimize risks.
With the right investment vehicles in India, you can grow your wealth and achieve your long-term financial objectives. So start exploring the options available and embark on your journey towards financial success today!
Read More – SustVest
Founder of Sustvest
Hardik completed his B.Tech from BITS Pilani. Keeping the current global scenario, the growth of renewable energy in mind, and people looking for investment opportunities in mind he founded SustVest ( formerly, Solar Grid X ) in 2018. This venture led him to achieve the ‘Emerging Fintech Talent of the Year in MENA region ‘ in October 2019.