Understanding Investment Types & Strategies

• Investment is putting money into an asset with the expectation of future income or appreciation.
• In economic terms, investment means purchasing goods not for immediate consumption, but to generate future wealth.
• In finance, investment involves buying monetary assets to provide future income or to be sold at a higher price for profit.

Types of Investment

• Traditional investments are well-known financial products like bonds, shares, and real estate.
• Alternative investments include assets like hedge funds, precious metals and derivatives.

Traditional Investments

• Common strategies that investors use to grow their money.
• These strategies include Bonds, Stocks, Small Saving Schemes, Mutual Funds, Fixed Deposits and Real Estate

Bonds

• A bond is a fixed income investment where an investor loans money to a corporate or governmental entity.
• The entity borrows funds for a specific period at a fixed or variable interest rate.
• Bonds are used by companies, states, municipalities, and governments to raise funds for various projects.
• Bond owners are the debt holders, or creditors, of the bond issuer.

Stocks

• Stocks, or equity, are shares issued by companies and purchased by the public which offer an avenue for companies to raise funds.
• Owning stocks entitles a customer to company ownership.
• Shares, stocks, and equity refer to the same asset, a popular investment avenue.
• Stocks generally offer higher returns than other financial instruments, but also carry higher risks.
• Businesses issue different types of shares based on their financial needs, and shareholders receive stock certificates.
• Stocks are divided into common stocks and preferred stocks.

Small Saving Schemes

• These are popular financial tools for saving in the financial market.
• The scheme enables the habit of saving in people from almost all economic sections.
• Common small savings tools include certificates of deposit, savings accounts, and pension accounts
• Most small savings schemes are initiated and facilitated by the government to enhance savings across the country.

Mutual Funds

• These funds are professionally managed financial instruments that invest money in different securities on behalf of investors.
• Mutual funds are classified based on the type of securities they invest in.
• Popular mutual fund types include balanced funds, stock funds, and open-ended funds.
• Funds are also classified based on their percentage allocation in different securities.
• Equity funds invest purely in equity and are high-risk, high-return, while debt funds invest in debt and money market instruments.

Fixed Deposits

• These are financial instruments and regarded as one of the oldest and safest ways to save money.
• Fixed deposits are not necessarily active investment tools, but are a passive way to save and earn returns.
• A fixed amount of money is kept aside with a financial institution for a fixed number of days, months, or years.
• In turn, interest is earned on this money which differs with the deposit tenure and the banking entity.

Real Estate

• Property rates are increasing, making real estate a hot investment.
• Buying, selling, and leasing property can offer substantial returns.
• Appreciation of property makes real estate a good investment tool.
• Real estate has become a hot hub for investors.
• Many investors take loans to purchase real estate, then lease or sell the property.

Alternative Investments

• These are investments that are not regular, they include jewelry, precious metals etc.
• Capital, hedge funds, some real estate types, venture and derivatives are alternative investments.
• Alternative investments are non-traditional, complex, have low liquidity, and high minimum limits.
• Common investors may not access hedge funds or derivatives, but gold and real estate are available to most.

Hedge Funds

• These are professionally managed private investment companies or partnerships.
• Techniques to manage hedge funds are not commonly allowed for SEC regulated companies.
• Hedge funds invest in financial derivatives and/or publicly traded securities.
• Hedge funds are popular as an alternative investment tool due to their high leverage and returns.
• Hedge funds are characterized by high fees and low liquidity, where managers generally have a personal stake.

Private Equity

• This involves trading shares of operating companies that are not publicly listed or available on the stock market.
• Institutional investors use various strategies in private equity trading.
• Private equity offers diversification by allowing investment in avenues not tightly coupled to normal investments.

Venture Capital

• This is a popular investment strategy in the Indian start-up scene.
• Venture capitalism is based on ideas that find substance with investors or any new technology.
• The main idea is to invest capital in a budding company in return for stocks.
• This strategy is used with companies in their initiation or growth phase.

Structured Products

• These are alternative tools that combine two or more financial instruments into a single packaged strategy.
• Derivatives are often combined with securities or derivatives.
• Structured products have a fixed maturity date like bonds.
• They offer a convenient strategy to implement complex investment strategies across various products.

Collectible Items

• Collecting items that have substantial and historical value is a tricky type of alternative investment.
• Knowledge of the item being purchased is essential.
• Collectibles like stamps, jewelry, boats, planes, and art tend to appreciate and are profitable assets.
• Artifact values generally increase with inflation, making collectibles a good investment.
• There are other alternative instruments, but they're complex and less common among regular investors.
• Professional investors often use alternative strategies to increase wealth.