INVESTMENT
What is Investing?
Investing is a process where you buy an asset to generate regular income or expect appreciation in the value of your investment over a long period of time to achieve your current and future financial goals. Knowing what and why you are investing is crucial, It is also difficult to choose the right instruments to fulfill your financial goals. The agenda should be always to find great business which can survive in unfortunate times like COVID-19 and still give you better profits for your investment.
Investment is not like you buy an asset and expect it to grow year by year. There is risk involved in everything you invest. The simple rule in investing is, invest in what you understand, do you think electric vehicles are the future? Then invest! If you don’t understand the business, or can’t analysis the asset, that you want to invest. You let others do that job for you by taking the advice of a financial advisor. Not to forget, following a systematic investment plan is the best way to create wealth for any Retailers.
Why should YOU invest in any assets?
Ask yourself why you should invest? My answer is, I want to get rich and live a better lifestyle than my current lifestyle. Every one has goals everyone has dream to own a home, car, bike etc. If you don’t let money work, then we just one step away from poverty when you lose your regular income. So, investing in early age for your future is very important.
Before looking into so much ahead, we should beat out the country’s inflation rate every year if you don’t want to become poor year to year. Now that you heard inflation, let’s understand what is inflation rate?
Inflation rate
In India, The inflation rate is approximately around 6-8%. What does that tell us? Simply our cost of living is going up means goods/daily essentials price is going up every year by 6-8%. Even though you’re working professionally with a 10% hike you don’t save much for your needs in future that is your short and long term financial goals.
Short and long term financial goals: If your money doesn’t work for you! I bet you, You won’t be able to fulfill short/long term financial goals. That may be buying a car, bike, home, etc.
Summary
Guy’s I’m keeping things very simple, I don’t want to display you a lot of information which basically messes you up while making decisions. There are a lot of blogs talking about investment, they just put so much information which are unnecessary. Let me make a point here! You should have an idea that you shouldn’t invest in any assets that give you less than 8% return over the year because of inflation. Then on which all assets can you invest to get better returns? You find the answer when you read till the end. But before that we will look into all the possible investment opportunities for us.
Different categories in asset class investment
Fixed Income
These are investment instruments that give you fixed interest for your investment on a particular instrument you choose. The interest is paid in quarters, semi-annual, annually or at the end of the maturity period with your capital that you have invested over a period of fixed time.
Distinct Fixed Income Instruments:
- Fixed Deposits offered by banks.
- Bonds offered by the Government of the country.
- Bonds offered by corporate Companies.
Equity
In this investment instrument, one can buy shares that are publicly listed either on BSE(Bombay Stock Exchange) or NSE(National Stock Exchange) in India. This financial instrument is the one I like to invest for better profit than any other asset class. Also, you can invest in ETF, which are usually like passive mutual funds.
Equity financial instrument give the best return for anybody only if you chose right one. The bad equities will burn your capital to dust. So in equity it’s important to invest in great business and good management for a long period of time for better return as it compounds every year.
Top Equity Stocks in Indian Market:
- Tata Consultancy Service,
- Asian Paints, and
- Kotak Bank.
Mutual Fund, Index Fund and ETF
When it comes to mutual funds and index funds, you can invest in any mutual funds by contributing monthly sips. Where you can expect 12-15 present returns on a yearly basis. The only difference from stocks is here you don’t get as stocks to your demat account, rather you get as a unit, which are actively managed by fund managers where fund managers do the investment decisions instead of you.
Index funds are like passive mutual fund where the index fund consist of stocks of an index like NIFTY50 or BANKNIFTY. Consider the name of index fund is xyz and it invests your money into top 15 stocks of nifty50 as simple as it. Index fund eliminate the active fund managers here.
Exchange Traded Funds are also like index fund, here you can buy and sell an ETF in market hour at any given market day. Whereas in index fund and mutual fund you can’t sell in market hour.
When you invest in any equity, mutual funds, index fund, and ETF unlike the fixed income, One can expect the annual returns or CAGR(Compound Annual Growth Rate) of about 12 – 15% in India, even more like 20-25% when you invest in quality stocks.
Note: Few people may get confused between Equity, Mutual Fund, Index Fund, and Exchange Traded Funds. We will come up with more detailed content on each and also tell you which are the best MF and ETF available for retail people.
Commodities
Commodities are basically goods or raw materials. You can invest in these instruments which are GOLD, Silver, Aluminum, Copper etc. Here, you have to purchase them physically and store. In India, we can’t buy and sell gold in stock market as investment, rather we can invest in terms of an ETF(Exchange traded Funds). This option of an ETF is good if you are looking for short term investment like 1-2 years of period. But you are investing for the long term Sovereign gold bonds(SGB) suit the most.
SGB are issued by the RBI of India which you can buy and do investment with the lock in a period of eight years. SGB are good investments because you get 2.5% annual interest, No need to pay GST, and you can also get tax-free when your bond matures, maturity period is 8 years as of now.
Top Commodities included in ETF:
- GOLDBEES,
- GOLDSHARE
- HDFCMFGETF, and
- AXISGOLD
Real Estate
In this investment instrument you tend to buy Real Estate property like Building, Apartment, and Lands and sell it at a higher price, or you rent your property for regular monthly income or for capital appreciation on your investment. Also, when you want to settle in some place, Some point in life you can buy a home or apartment. Especially when you have big capital, you can go with this option to create that ecosystem to live life happily with your loved ones.
Real estate are very good investment specially when you invest on vacant land where you build a build and create business, you start agriculture, and many other opportunities to create new business. The best part of real estate is “It is there no matter what!”
Note: Better to go with this option when you have BIG CAPITAL and when you’re a family man, you can look at this option only if you can afford.
There are other two divisions in the real estate domain. One is where you can buy stocks of the companies that are working in the real estate domain.
Top Equity in Real Estate:
- Godrej Properties,
- DLF, and
- Prestige.
The other very interesting instrument is REIT(Real Estate Investment Trust) which are the same as Mutual Funds that are available on stock exchanges like ZERODHA, But the minimum investment for these instruments is 50000 rupees. You can’t buy a single share of a REIT, rather you have to buy a lot(Usually 200 shares).
Here in REIT’s you get income at least twice in a year like the way you get dividends from stocks. The thing is here you are the actual owner of this asset/property, But if you buy real estate equity you are not the owner of that property.
Top REIT in Real Estate:
- MindSpace, and
2. Embassy REIT.