Nowadays, the investor wants to make their investment in financial assets in such a way that they receive sky-high returns and gains without the risk of loss of principal amount that has been invested by the investors. This is the main reason why investors are looking for top investment avenues where they can gain a lot of money in a short period of time say few months or a year with no or less risk of capital.
But, this type of investment in which high returns with low risk doesn’t actually exist. It is a true fact that the risk and return go hand in hand and thus these two elements are directly related i.e. higher returns commensurate with higher risk and vice versa.
Thus, the investor should carefully analyze the risk-return trade-off and then they invest accordingly. There are some financial assets which carry high risk and thus generate high inflation-adjusted returns in the long term while some assets have low risk and thus generate a low return.
THE TOP 4 INVESTMENT AVENUES IN INDIA
There are some high potential investment avenues the Indians looking for achieving their goals.
- EQUITY MARKET: Equity is considered as variable income securities and thus are the volatile asset class. Equity carries high risk and thus it is difficult to choose the right stock and thus timing your entry and exit is not also an easy task. This asset class provides inflation-beating returns in the long term as compared to debt securities. Equity provides returns in the form of dividends and capital appreciation. Thus, to reduce risk the investor should diversify his/her portfolio across different market sectors. The investment in stock carries a market return of 13%, 8%.12.5% with one, three and five years respectively.
- DEBT MARKET: Debt mutual funds are ideal for the investor who is at their prime stage and who want steady returns. This asset class is less risky and thus less volatile as compared to equity funds. Debt mutual funds invest in securities which provide fixed income such as corporate bonds, treasury bills, commercial paper and etc. The debt mutual funds carry a market return of 6.5%,7.5%, 8% with one, three and five years accordingly.
- PUBLIC PROVIDENT FUND: This is the most popular, tax-free investment scheme of Ministry of finance. This scheme is a compulsory saving scheme and helps in saving discipline. Investment in PPF generates around 8.1% p.a. on a compounding basis. It is the investment avenues which has a minimum limit of Rs 500 and a maximum limit of Rs 1,50,000. PPF is an exempt, exempt, exempt and thus no tax is levied on withdrawals on maturity, interest income and periodic deposit provide a tax deduction.
- MUTUAL FUNDS: Mutual funds are asset management companies which collect and pool resources from different investor and invest the money in different investment products like equity, debt securities, etc. The mutual funds provide diversification and power of compounding to the retail investors as they invest in different market segments.
- SYSTEMATIC INVESTMENT PLAN: A systematic investment plan is the smart mode of investment as this type of mutual funds provides rupee-cost averaging and compounding benefits.
- GILT FUNDS: These are the funds which invest mainly in government securities. These funds provide low return and thus carry low risk. These funds are protected from credit risk as money is exclusively invested in government securities. SBI Magnum gilt is one such gilt fund operating in India.
- COMMODITY DERIVATIVE: This is a derivative contract where the underlying asset is a commodity. These are the legally binding contract in which quantity of a commodity is fixed before and thus buying and selling of commodity is done on a future date.
Major categories of commodities that are traded at MCX in India are:
Bullion – gold, silver
Energy products – crude oil, natural gas
Base metals – copper,aluminum, zinc
Agricultural commodities – cotton, kapas, palm oil
Thus, investors should invest according to their investment goals. Some of the above investment are market-linked or fixed income investment. These securities play a vital role in wealth creation. An investor should invest in securities by keeping risk appetite in mind. There are various investment avenues which provide diversification and power of compounding.