When a beginner decides to start their investment journey, they are often riddled with numerous questions. The most important question lingering in their minds is how much will their investments grow? Will their invested money get wiped out? When they don’t get a convincing answer from their dear ones, they eventually end up surfing the Internet. Now, this is where they start scratching their heads wondering where to begin.
They find themselves cornered with a multitude of investment options surrounding them. The Internet gives them so much to consume that they find themselves overwhelmed with information. This is where most people give up, and reach out to intermediaries calling for help.
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The number of people using brokerage services in India has reached 3.35 crore as of January 2023 according to the National Stock Exchange (NSE). Even though the number of active clients using brokerage services in India has significantly increased in recent years, it is still relatively low compared to other developed countries. For example, only about 3% of Indian households are actively investing in the stock market, compared to 55% of households in the US.
People taking interest in investing is increasing dramatically, however, they aren’t still able to make the most of the investment options made available to them.
So let’s take a look at the best investment options for beginners in India:
Mutual Funds:
Investors who share a common investment objective of making slow-and-steady progress, invest in an investment fund to purchase securities. Collectively, these investments make their way into equities, bonds, money market instruments and other securities. Mutual funds in India are regulated by SEBI (Securities and Exchange Board of India). However, the functional aspect of the Mutual Funds industry falls under AMFI, a subset of SEBI.
Broadly, there are 3 types of mutual funds viz. Equity Mutual Fund, Debt Mutual Fund, and Hybrid Mutual Fund.
Equity Funds:
In an equity fund, as the name suggests the pooled money is invested principally in equity stocks. These funds are usually low-cost and they don’t require active management. Equity funds are further categorized based on both their size of the companies and their market caps, such as small-cap, mid-cap, or large-cap funds.
Debt Funds:
Government bonds, debentures, or other debt instruments pay a percentage of returns on investment. This type of fund portfolio generates interest income, which is then passed on to the shareholders. They are also referred to as bond funds,
Hybrid Funds:
Balanced or hybrid funds are a hybrid of bonds and stocks. The objective of hybrid funds is to reduce the risk of exposure across asset classes. These type of funds are also known as asset allocation funds. The portfolio manager has the liberty to switch the ratio of asset classes to maintain the integrity of the funds.
ETF and Index Funds:
Exchange-Traded Funds specifically branches out of the index funds tree. They are bought and sold on exchanges. In brief, ETFs are like mutual funds that can be traded in real-time during the daily market times.
Index Funds:
Index funds are designed to track the performance of a specific market. They are passively managed and they try to replicate the performance of the index they are tracking. A market index is a collection of securities like stocks and bonds that represent a particular segment of the financial market. Index funds are often preferred by long-term investors who aspire to build wealth over time.
Gold Investment:
There are numerous gold investment options available including Gold Exchange-Traded Funds, Gold Funds, and Sovereign Gold Bong Scheme. Some traditional options include buying jewelry, coins, and bars.
Investing in Gold ETFs is like buying gold without the hassle of physically storing it. In fact, the gold is stored in your Demat account. Likewise, investing in Gold Funds simply means investing in gold mining companies.
Direct Equity:
An individual or an entity possessing ownership of shares or stocks of a company is referred to as Direct Equity. The individual becomes a shareholder when he or she owns direct equity in a company. This enables them to have a proportional claim on the company’s assets and earnings.
Real Estate Investment Trusts (REITs):
In simple terms, a REIT is a company that owns, operates, or finances income-producing real estate across a range of property sectors.These properties include apartment buildings, office buildings, hotels, shopping centers, etc.
REITs provide opportunities to individuals to invest in large-scale, income-producing real estate without having to buy or manage properties directly. However, there are certain criteria set forth by tax authorities that a company must follow to qualify as an REIT.
Government Bonds:
In an attempt to raise funds for different public projects and to cover budget deficits, Government Bonds are issued as debt securities. When purchasing government bonds, you are essentially lending money to the government in exchange for receiving periodic interest payments and the return of the bond’s face value (the principal) when it matures.
All in all, these are certainly some of the best investment options for beginners in India. However, it is advisable to carefully read the terms and conditions of each option before you begin your investment journey.
Additionally, don’t miss out to check out how AI in investing has taken the investment frontier by storm. These AI-backed investment products have the potential to make your investment journey fluent and flawless.
