Types of Investments
This lesson will explain in detail about stock market investing.
This article is designed for all new comers to stock market.
After understanding this lesson our next objective is to learn, step by step, how to invest in value and growth stocks and how to get good returns with low risk.
To start letís see what are the different ways of investing.
Types of Investments
There are many ways to invest the money, which are different from each other depending on there on risk factor and returns they provide.
To know which investment options are suitable, one has to find the characteristics and other details of those investments methods.
Mainly you can invest in Bonds, stocks, Mutual funds, Futures, Gold, Real Estate, Forex etc
Letís study one by one so that at the end of this chapter one should be able to find which investment option suits best for him.
1. Bonds -
A company needs fund to expand into new markets, new products etc, while government need money for everything from infrastructure to social programs.
In such scenarios they issue BONDS. A bond is nothing more than a loan for which you are the lender (provider) and the organization that sells a bond is known as the issuer.
Benefits - Company or government firms provide interest on bonds.
Who can invest in bonds?
This is the safest and low returns of investment type. This type of investment is mostly preferred by persons who doesnít wish to risk there money and expect low returns.
2. Stocks -
Stocks are exactly opposite of bonds. Stocks will provide high returns with high risk.
If you buy some stocks then you will become share holder responsible for profit as well as loss for that company.
If company makes profit then it may pay you back in terms of dividends, but it is not guaranteed.
Some companies reinvest the profit for further growth and expansion plans which will increase the stock price of that company. If the company makes loss then the stock price may come down.
3. Mutual Funds -
Mutual fund consists of fund manager and investors.
The fund manager collects the money from all investors and invest in stocks, bonds etc.
It is the decision and responsibility of the fund manager to invest your money and generate the profit from investments.
As some part of your investment is done in stock market so risk factor is present. As the investment is done with highly qualified and experience person the risk is moderate.
What is Value Investing?
Investing in stocks which are under valued or not overpriced or which are below there actual cost. As we proceed further we will see how start investing in such stocks.
Benefits of Investing in Stock Market for Long term
1) Investing for long term in stock market consist of low risk with high returns, provided you invest in value and growth stock. It is proved by many analysts and noted investors like Warren Buffet that value investing gives you excellent returns and also it is verified and confirmed by companies through there past annual reports and prices.
2) No need to worry for daily ups and downs in share prices or market volatility.
3) No need to monitor daily share prices sitting hours and hours in front of stock market, watching news etc. Itís not required daily but periodically you can update yourself about your stocks through news etc to track your stock prices.
Conclusion - People select investment in Mutual funds if they donít want to take headache of investment themselves in stock market.
Risk involved in mutual funds will be mentioned in there terms and conditions page and also they mention that they does not provide guaranteed returns. So please the offer documents before investing in stock market.
For more information about investing in mutual fund please visit at - Invest in Best Indian Mutual Funds
4. Options and Futures -
These are high risk and high returns related investments.
This investment method is advanced, which requires good knowledge of stock market.
Note - If you are new to investment then you should first learn basics and start investing in such instruments.
For more information please visit at Trading in Futures Derivatives (F&O)
It is clear from above description that which investment method includes what type of risk and what type of returns.
All of above if you take stock market and invest for long term in value and growth stocks then the returns will be excellent with low risk.
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