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  • Investments

    In the financial industry, there are two concepts that form the basis of most transactional activities. One is savings and the other is investments. There is a huge overlap between the two concepts though, it terms of execution.

    Investment in terms of financial context, means any money that is spent today in the hope of financial benefits that may be reaped in a future time frame. Any investment is the act of buying or creating assets with an expectation that the same would yield interest earnings or dividend or capital appreciation or any other return that is profitable as compared to the money put in initially. Almost all investments are differentiated from other kinds of transactions based on the aim of the money spent. Money spent on making investments is primarily with the aim of obtaining some sort of return in a specific period of time.

    A lot of times people confuse savings with investments. Savings and investment are different from each other in their approach of utilizing the money involved. While saving may be understood as a passive way of accumulating wealth, investment can be seen as a more aggressive way of securing returns. Mostly, under savings, customers avail a savings account and stash away cash in that account. This cash can be used as and when required by the account holder.

    Types of Investment

    Investments made in the finance industry can be divided into two distinct types namely, Traditional and Alternative. Let us look into each of these types one by one and see what investment categories fall into which type.

    Traditional Investments

    Investing in well-known financial products falls into the category of traditional investments. These include bonds, shares, real estate etc. These are categories which are quite popular among investors as active investment strategies to make your money grow. Following are the investment products that fall under the category of traditional investment.

    Alternative Investments

    Alternative Investments are those that are not regular investments like stocks, bonds etc. These are investments made in order to acquire jewelry, precious metals etc. which are expected to yield returns in future. Hedge funds, some real estate types, venture capital and derivatives also form a part of alternative investment. Alternative investments are so called due to their non-traditional as well as complex nature. Also, another distinguishing feature of alternative investments is relatively low liquidity and well as very high minimum investment limits.

    While a common investor may not access alternative investments like hedge funds or derivatives due to their complex nature, others like gold and real estate are available to even the common man. Let us look into some of the most prominent alternative investment tools known to investors.

    There are a few more alternative investment instruments available in the financial world. However, their use is limited since these are more complex products and are hence not considered by the common investor. Seasoned investors and professional investors tend to consider these alternative investment strategies to increase wealth.

    Why is investment important

    Investment is one of the most important aspects of financial planning. The aim is to make sure that the money earned by you does not lie around being unproductive. It is a good and profitable idea to make money from any extra cash that a person might have. Investing in various financial products lends growth to any financial portfolio. One thing that is absolutely clear is that any amount of money is sure to appear less with each passing day. This is because the value of say Rs.1000 will not be the same 5 years down the line as it is today. Same holds true for the value of Rs.100 10 years ago as compared to its value today. Hence, it is important to understand that saving alone is not enough for future financial goals. Any investor or common man needs to ensure that his or her money grows as well. Investment can be defined as any activity that involves using money in a way which offers returns in future. Mentioned below are some of the most important reasons for investing money.

    Various examples of investment

    As discussed in the sections above, there are two forms of investments that exist. One is traditional investment while the other is alternative investment. Based on this particular categorization, following are some of the most popular financial tools that fall under each category of investment.

    Traditional Investment

    Alternative Investment

    How do I start investing?

    One of the most basic question for people is how to start investing and what financial product to invest in? The answer to both of these questions begins with the analysis of financial assets as the first step. You need to see the amount of money that you have in order to begin investing the same in investment tools. The second basic but important point is to understand the financial goal for which you are investing.

    There could be a host of reasons why an individual wants to invest money. It could be for meeting his financial needs post retirement or to meet the education expenses of his/her children. In any case, identifying the aim on investment is one of the most crucial steps since this will give you a fair idea about the investment tool to go for. The aim of the investment will also chalk out other relevant details like the timeline of investment, the quantum of investment and the type of financial product to zero down on. There are low risk as well as high risk financial tools in the market but experts suggest that young people should opt for high-return high-risk products while older people or those nearing their retirement should go for something that is low on risk and offers low to moderate returns.

    Once the above listed crucial questions are sorted, the next step is to actually begin investing. This could be done on your own or by taking help from a financial expert. In either case, there is high chance that with the passage of time, you too will start gaining knowledge about investment avenues and related products.

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