Investment Meaning, Types And How To Start Investing
13 June 2022
Investment is a financial commitment to meet short-term, mid-term, or long-term financial goals. It refers to assets or securities acquired with an aim of earning income or creating wealth in the future. Investments are made to prospectively create future capital through equity, bonds, real estate, etc. If you are someone who wants to know what is an investment, how it works, the types, the documents required and how to start investing, you are at the right place. Keep reading!
What is an Investment?
Investment refers to assets that generate income or appreciate in value over time. The idea is that when you buy goods, you do not consume but you keep them for future returns. The intent is to generate a better payoff in the future than what was initially put in. An investment includes any medium or mechanism used to generate future income including bonds, stocks, business, or real estate.
How do Investments Work?
The goal of an investment is to generate income and increase its value over time. Investments generate returns in two ways. In the first method, investors can sell it and gain capital income. The second method is that the investor can earn regular income from them in the form of interests and dividends.
Investing includes the purchase of bonds, stocks, products, gold and machinery, to produce returns. Understanding what is an investment might be easy, however, investing can be tricky as it may generate income or loss. The companies that are invested in, might go bankrupt which can cause you heavy loss. Therefore, investors should evaluate the risks associated with them and make investments cautiously.
Why Should You Invest?
Saving money from every income creates savings funds. But keeping these savings in a savings bank account will get you little to no return given how low the interest rates are. Another reason to invest elsewhere is that a savings account does not give inflation-adjusted returns. This leads to a loss of capital. Through investing, you get:
Aid in times of emergency: It is easy to liquidate investments. They act as financial aid in times of emergency. One can sell their assets or take loans against some investments at times of crisis.
Meet future financial goals: Having only a primary source of income and spending it normally will take a lot of time to fulfil your big financial goals. It is necessary to make long-term investments that can help you achieve bigger goals.
Have a secure future: Investing in the right way will also ensure a secure future. In extraordinary and unforeseen cases, these investments prove to be of great help.
6 Types of Investments that are Beneficial
This is the most common form of investment in India. Here, the investment is done in shares of companies through the stock exchanges to earn capital gains and also earn regular income from dividends. When the share prices of the stocks go up, the investors investing in those stocks benefit. The returns from these investments are linked to the market, which makes them extremely risky.
Bonds are used by companies or governments to raise money for their own operations from the investors. Bonds are issued to generate funds for specific projects. In return, the bond issuer pays interest to the investors apart from paying back the bond amount upon maturity of the bond.
3. Mutual Funds
Pooled funds of the investors are invested in equity, debt and related instruments like stocks, bonds, commodities and other securities based upon the mandate of the fund. The investors get units of the mutual fund. A fund manager manages and keeps a check on the mutual fund’s portfolio.
There are many types of mutual funds – The main categories are debt mutual funds, equity mutual funds, and hybrid funds. Mutual funds are considered more stable compared to stocks due to their diversification feature within a single product. Interested in investing in mutual funds? Visit Navi Mutual Fund and start investing today!
*Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
ETFs (Exchange Traded Funds) are pooled investment security that brings the best of stocks as well as mutual funds into one single product. ETFs are traded on the stock exchange like common shares but provide diversification within a single unit of ETFs like mutual funds and track a benchmark index. ETFs are lower-risk and low-cost options to get exposure to the stock market. They offer real-time settlement and liquidity.
PPF (Public Provident Fund) was launched by National Savings Institute and is a savings-cum-tax saving investment. PPF investments are backed by the Government’s sovereign guarantee, making it a safe investment vehicle. The rate of interest is 7.1% p.a. with a lock-in period of 15 years. The interest accrued each year is paid to the PPF account holder on 31st March every year.
ULIP (Unit Linked Insurance Plan) is ideal for individuals with long-term financial goals. It provides the opportunity to invest in different market-related securities like balanced funds, debts, and equity to get long-term returns. It also provides life cover to protect your family financially, in case of any crisis.
Identification proof – Aadhaar card, voting card, PAN card, Aadhaar card, etc.
Age proof – Aadhaar card, Passport, Voter’s ID card, driving license, etc.
Income proof – Bank statement, Salary slips, Income Tax returns, etc.
When Should you Invest?
There is no perfect time to start investing. In fact, the sooner you start, the better your chances to earn higher future returns. There are many investment options where you can start with very small amounts. But if you are a working professional and you have not started investing yet, then you must definitely consider the many options available.
Investment is a vehicle for potentially generating wealth depending on an individual’s long and short-term financial goals. It not only provides a future source of income but also works as financial aid in times of crisis. Apart from saving, you must also start investing. If you are new to investing, check out Navi Mutual Fund to start investing online now!
*Mutual Fund investments are subject to market risks. Read all scheme related documents carefully before investing.
FAQs on Investment Meaning
Q1. What is an investment?
Ans:Investment refers to assets acquired or money committed with the objective of generating higher returns in the future. An investor can also sell the assets to invest further.
Q2. What is the difference between investment and savings?
Ans:Investment refers to the process of acquiring an asset with the goal of generating returns in future. Savings refers to putting money aside in a bank, or other such organization to use in a needy situation.
Q3. Why invest when you can save money with zero risk?
Ans:Though there is a risk associated with investments, the risk is rewarded with an expected return in the form of capital gains, interest flows, and dividends.
Q4. What are some types of investments I can make?
Ans:The most common types of investments include bonds, stocks, and CDs. You invest in the equity of a company through stocks. Bonds and CDs are debt investments. The money is out of use which is expected to bring returns more than the interest owed to the owner.
Q5. What are the types of investments?
Ans:Investments can be mainly categorized as: Fixed Income investment: which bears fixed returns such as interest. Examples are Debentures and bonds. Variable income investment: they do not provide annual fixed returns and the returns vary every financial year. Their value appreciates after a long time.
Before You Go… Want to put your savings into action and kick-start your investment journey, ? but don’t have time to do research? Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
We are a diverse group of writers, editors and Subject Matter Experts striving to bring the most accurate, authentic and trustworthy finance and finance-related information to our readers. Our mission is to simplify jargon and industry lingo. We believe sharing knowledge through relatable content is a powerful medium to empower, guide and shape the mindset of a billion people of this country.
Copy Trading: Strategy, Risks, Benefits and How to do Copy Trading?
Copy trading is a way to automate your investments that involves copying the trades of other trader...Read More »
What is Money Management – Its Tips and Why is it Important?
Money management is managing your wealth or finances in ways that keep your finances flexible and y...Read More »
Top 5 Wealth Management Tips That You Should Consider in 2023
If you have already started saving money, then probably it’s time to grow your wealth. What’s t...Read More »
EPF Interest Rate In 2023: How To Calculate Interest On EPF Contribution
Employee Provident Fund or EPF has been popular among salaried individuals for a long time now. It ...Read More »
7 Ways To Become A Smart Investor In 2023
Investing wisely is the key to constant wealth creation. A lot of elements are essential in the ent...Read More »
6 Tips you can Consider to Save Money in 2023
It’s 2023 and our financial experiences have changed a lot in comparison to, let’s say a decade...Read More »
5 Ways To Diversify Your Investment Portfolio in 2023
If you want to start investing, diversifying your investment portfolio is important.
There are d...Read More »
5 Best Money Making Habits That Can Make You Wealthier in 2023
Almost everybody seeks to become wealthy, but only a few achieve that goal. Because becoming wealth...Read More »
Wholly-Owned Subsidiary – Definition and Features Explained
You must have heard about larger companies acquiring smaller companies for business expansion. When...Read More »
Profitability Ratios – Types, Importance and Calculation
Investors use profitability ratios to assess a company's capacity to earn profits in comparison to ...Read More »
How Implementing Economic Order Quantity (EOQ) Could Drive Effective Inventory Management
Economic Order Quantity (EOQ) is a metric that helps determine the optimal order quantity a busines...Read More »
Stock Appreciation Right – Types, Examples and How do they work?
Companies adopt several methods to incentivise or retain their employees. One of the most common me...Read More »
Diwali 2022: Diwali Holidays – The Festival of Lights
The ‘Festival of Lights’ is one of the biggest and most anticipated festivals in India. This is...Read More »
Best Index Funds – Top 20 Index Funds in India
Index funds replicate the performance of a stock market index, such as the Sensex or Nifty 50 to ge...Read More »