Where to Invest - An Introduction to Asset Class

Prasanth Menon

05 May 2017

New Page 1

Investment is good but ignorance is not. Especially when your hard-earned money is at stake. It is essential to know the various investment options that are available. For easier understanding, investments are divided into asset classes. These are nothing but groups of a similar type of investments. For example, if you like to play cricket, football, and volleyball your asset class would be outdoor games. If you like to play chess, snakes and ladders or ludo, your asset class would be board games.

The major asset classes include:

Debt (Fixed Income) Assets

Debt investment is when you lend your money into something and earn interest on the amount invested. On the completion of the tenure, you also get the principal amount back. This investment helps preserve principal and offers a regular flow of income in the form of interest. Have debt funds reduce the risk of your investment portfolio as well. They tend to lead to capital appreciation and help economic growth.

Equity (Stock and Shares) Assets

This is the biggest class of assets in the entire category. It means buying a certain number of shares in a business, thereby owning a part of the company. Companies issue equity to raise capital for their business. You, as an investor, get to enjoy a share in the profit through dividends. You can also avail tax benefits and enjoy good liquidity. It is a well-regulated structure and leads to economic development of the country as well.

Real Estate Assets

Real estate assets go through the same ups and down like equities. They, however, have a slower upside and downside as compared to the other assets. These investments are also highly illiquid and offer little diversification. But your returns and risks would be somewhere in between that you get from the previous two classes. This does provide capital appreciation in the long run.

Gold Assets

Gold is known as a ‘precious metal’ carrying store of value. It is a safe asset to invest even during economic stress. It usually offers portfolio diversification and acts as a hedge against the inflation. You can invest in the non-physical form of gold such as Gold Exchange Traded Funds (Gold ETFs).

Investment Options Based on Asset Class (IG Content)

Investment has to be divided into smaller asset classes based on the type you choose to put your money in.

Debt Investment include:

  • Fixed Deposits

  • Government Bonds

  • Corporate Bonds

Equity Investment includes:

  • Stocks

  • Shares

Real Estate Investment includes:

  • Residential Property

  • Developmental Property (Land)

Gold Investment includes:

  • Jewellery, Coins, Bars

  • Gold ETFs and Gold Funds

To sum it all:

Investment is divided into the separate asset class and each class has its own pros and cons. You need to be sure of the purpose of investing and choose the asset class that suits you the best. You can either go for one asset class or invest in multiple ones for diversification of your financial portfolio.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Where to Invest - An Introduction to Asset Class

Prasanth Menon

05 May 2017

New Page 1

Investment is good but ignorance is not. Especially when your hard-earned money is at stake. It is essential to know the various investment options that are available. For easier understanding, investments are divided into asset classes. These are nothing but groups of a similar type of investments. For example, if you like to play cricket, football, and volleyball your asset class would be outdoor games. If you like to play chess, snakes and ladders or ludo, your asset class would be board games.

The major asset classes include:

Debt (Fixed Income) Assets

Debt investment is when you lend your money into something and earn interest on the amount invested. On the completion of the tenure, you also get the principal amount back. This investment helps preserve principal and offers a regular flow of income in the form of interest. Have debt funds reduce the risk of your investment portfolio as well. They tend to lead to capital appreciation and help economic growth.

Equity (Stock and Shares) Assets

This is the biggest class of assets in the entire category. It means buying a certain number of shares in a business, thereby owning a part of the company. Companies issue equity to raise capital for their business. You, as an investor, get to enjoy a share in the profit through dividends. You can also avail tax benefits and enjoy good liquidity. It is a well-regulated structure and leads to economic development of the country as well.

Real Estate Assets

Real estate assets go through the same ups and down like equities. They, however, have a slower upside and downside as compared to the other assets. These investments are also highly illiquid and offer little diversification. But your returns and risks would be somewhere in between that you get from the previous two classes. This does provide capital appreciation in the long run.

Gold Assets

Gold is known as a ‘precious metal’ carrying store of value. It is a safe asset to invest even during economic stress. It usually offers portfolio diversification and acts as a hedge against the inflation. You can invest in the non-physical form of gold such as Gold Exchange Traded Funds (Gold ETFs).

Investment Options Based on Asset Class (IG Content)

Investment has to be divided into smaller asset classes based on the type you choose to put your money in.

Debt Investment include:

  • Fixed Deposits

  • Government Bonds

  • Corporate Bonds

Equity Investment includes:

  • Stocks

  • Shares

Real Estate Investment includes:

  • Residential Property

  • Developmental Property (Land)

Gold Investment includes:

  • Jewellery, Coins, Bars

  • Gold ETFs and Gold Funds

To sum it all:

Investment is divided into the separate asset class and each class has its own pros and cons. You need to be sure of the purpose of investing and choose the asset class that suits you the best. You can either go for one asset class or invest in multiple ones for diversification of your financial portfolio.

Have Referral Code?