There are the following asset classes available to invest in. However, each asset class has unique features & properties, and one you should be aware of before taking an investment call.
- Cash
- Debt
- Gold
- Insurance
- Real Estate
- Equity
- Cryptocurrency
- Art & Antique
Let's go one by one
1. Cash:
- Purpose: safety & capital preservation
- Pros: highly liquid
- Cons: poor return
- Risk: inflation risk
- Investment Instrument: saving bank a/c, liquid fund
- Ideal Time Horizon: 1 day to 6 months (on a rolling basis)
- Expected Return: 3% - 5% p.a.
- Recommended for: contingency requirement, short-term cash management
2. Debt:
- Purpose: regular cash flow
- Pros: stability
- Cons: lock-in period
- Risk: default or credit risk, inflation risk, interest rate risk, reinvestment risk
- Investment Instrument: bonds, debentures, FD, post office schemes, debt MF
- Ideal Time Horizon: 6 months - 5 years
- Expected Return: 5% - 8% p.a.
- Recommended for: conservative investor, sr. citizen, medium-term goals
3. Gold:
- Purpose: hedge against inflation
- Pros: highly liquid
- Cons: price driven by the international market, returns may differ in dollar vs rupee due to duty
- Risk: currency risk, theft (physical), purity (physical)
- Investment Instrument: physical (sarafa, bank) & financial (ETF, MF, E-Gold, Gold Bonds)
- Ideal Time Horizon: > 5 years
- Expected Return: 8% - 10% p.a.
- Recommended for: long term investment goals with 5% - 15% portfolio allocation, invest via SIP
4. Insurance:
- Purpose: risk management
- Pros: cashflow protection, asset protection, annuity for life
- Cons: lock-in of 5 years (life insurance)
- Risk: probability risk (of not happening any causality)
- Investment Instrument: life, medical, PA, Critical illness, vehicle, home insurance
- Ideal Time Horizon: 1 year (on a rolling basis) for general, > 5 years for life
- Expected Return: low return (<6%), if taken for an investment purpose
- Recommended for: risk management & annuity for life post-retirement
5. Real Estate:
- Purpose: investment for long term goal, self residence
- Pros: provide emotional safety, ability to beat inflation
- Cons: extreme poor liquidity & lengthy process
- Risk: liquidity risk, can't sell in smaller units, encroachment & managing property, legal issues - clear title, lack of transparency
- Investment Instrument: residential, commercial, agriculture, real estate through MF
- Ideal Time Horizon: > 10 years
- Expected Return: 10% p.a. appx.
- Recommended for: self-consumption or regular rental income (although the rental yield is very low)
6. Equity:
- Purpose: capital appreciation in the long term
- Pros: get ownership, high risk - high return, ability to beat inflation in the long term
- Cons: highly volatile
- Risk: risky in short-medium term, business selection risk, principal risk, market risk
- Investment Instrument: direct equity, MF, PMS, ETF, Index, Start-up business, PE funds
- Ideal Time Horizon: > 10 years
- Expected Return: 11% p.a. appx.
- Recommended for: capital appreciation to achieve long term goals, wealth creation
7. Crypto Currency:
- Purpose: wealth creation by punters/speculators
- Pros: quick profit, can make you rich or poor overnight
- Cons: highly volatile, theft & hacking, burst of coin & exchange, one should be tech-savvy, no underlying asset backing, no physical or demat holding
- Risk: not governed under any regulators, no complaint mechanism or dispute resolution, highly speculative in nature
- Investment Instrument: cryptos like bitcoin and alternate currencies (more than 5000)
- Ideal Time Horizon: not specified
- Expected Return: extreme high (both side)
- Recommended for: very aggressive affluent investors
8. Art & Antique:
- Purpose: capital appreciation in the long term
- Pros: lifestyle & status
- Cons: illiquid, need deep knowledge market, holding capacity, need a huge amount
- Risk: transparency, title & ownership, purity & genuineness
- Investment Instrument: painting, art, antique pieces, vintage goods, heritage items
- Ideal Time Horizon: >5 years
- Expected Return: variable
- Recommended for: HNI & affluent investors for diversification
Apart from the above, the followings platforms are also available for:
- Derivatives - hedging, speculation, trading
- Mutual Funds - savings to investing
1. Derivatives - F&O
- Purpose: hedging against uncertainty whereas people consider it for speculation & trading
- Pros: quick profit & protect against future uncertainty
- Cons: double-edge sword, highly volatile, rollover & premium cost
- Risk: market risk, leverage risk
- Investment Instrument: commodity (metal, non-metal, Agri), currency, crude, bullion - F&O
- Ideal Time Horizon: 1 day to 6 months
- Expected Return: higher compare to underlying asset class due to leverage
- Recommended for: corporate & institutional funds
2. Mutual Funds:
- Purpose: saving to investing
- Pros: professional management, diversification, asset allocation, flexibility, well regulated, transparency,
- Cons: no portfolio customization
- Risk: market risk
- Investment Instrument: asset categories - equity, debt, liquid, hybrid, gold, real estate, ETF
- Ideal Time Horizon: 1 day to perpetuity
- Expected Return: 4% p.a. (liquid) to 11% p.a. (equity)
- Recommended for: all types of investors especially boon for retail investors
Disclaimer: Investment in securities & mutual funds are subject to Market Risk
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