Stocks, gold, property or mutual funds? Know where you can invest your money

Investment is when you purchase assets and expect it to generate wealth over a certain period of time People invest to multiply the money to meet future financial expenses or goals or to prepare for financial contingencies So what are the broad investment categoriesEquitiesWhen people invest in equities they are essentially buying shares of a company This can be either through the primary market which is the initial public offering IPO or through the secondary market where people buy existing shares of a listed company that are already in circulationSo why do people invest in the stock market Buying shares of a company makes you a part owner of the company You can earn returns in the form of dividends or sell the shares at a higher price than what you purchased initially thus booking a profit on these stocksHowever investing in the stock market is considered to be risky as the prices are volatile which means they are prone to change rapidly Hence people can either earn higher returns if the stock gains value or could incur losses if the share prices fallDebt marketDebt market instruments refer to fixedincome instruments such as bank fixed deposits government securities and corporate bonds These are essentially contractual obligations where you lend money and earn interest on it at the end of the contract or the maturity dateThe risk involved is lower than equity market but in some cases such as corporate bonds there is an inherent default risk involved As the risk is generally low the interest rate is also generally low while higherrisk instruments may offer higher potential returnsReal EstatePeople acquire land or property by investing in real estate When the property or land value appreciates you may sell it to earn a profit However people primarily invest in real estate to acquire an asset in this case a house which is used for consumption purpose staying However in case of a financial crisis you could mortgage or sell this property to raise funds But these investments are illiquid meaning that you cannot immediately convert them into cashCommoditiesPeople purchase commodities such as gold and silver which can be used for both personal consumption such as wearing jewellery or for investment purposes In case of an emergency in the future you may sell these commodities to garner fundsYou can invest money directly in these asset classes or through pooled investment vehicles With these investment vehicles the money collected from several investors is invested in one or more of these broad asset classes You indirectly invest in the asset categories through investment vehicles which are professionally managed So what are some of the investment vehiclesMutual fundsMutual funds are one of the most popular investment vehicles through which several investors subscribe to a fund housersquos scheme and the corpus collected is invested in one or more of the broad asset classes based on the investment objectiveHowever as the money is invested in the asset class with an inherent risk such as in case of equity the value of the investment may rise or fall depending on the underlying value of stock Generally mutual fund managers diversify the investment portfolio to reduce the impact of such occurrencesREITs and InvItsReal Estate Investment Trusts REITs and Infrastructure Investment Trusts InvITs are another type of investment vehicle They issue units in a public offer or through private placement to raise funds for a scheme REITs are mandated to invest at least 80 per cent of the asset in completed and income generating properties In India REITS are only allowed to invest in the commercial real estate sectorInvITs too are mandated to invest 80 per cent of the assets in completed and revenuegenerating infrastructure projects in roads highways power plants among othersREITs and InvIts are required to distribute 90 per cent of their net distributable cash flow or the actual cash available to the unitholders in the form of dividendThere is risk involved in this type of investment scheme as well which is linked to the underlying asset market movement and regulatory factors such as the Reserve Bank of Indiarsquos monetary policy which may impact the unit pricesNational Pension SchemeThe National Pension Scheme is a governmentsponsored pension scheme where employees can voluntarily invest a portion of their income which is aimed to provide a stable income post retirementMany employees invest in this scheme and professional fund managers invest this amount in diversified asset classes Upon retirement at least 40 per cent of the accumulated profit needs to be utilised for purchasing an annuity to provide regular pension incomeIt is important to understand your financial needs the amount you can invest the risk appetite and the risks involved with the type of investment before embarking on your investment journey