Types of Investments

An investment is a way of multiplying your money. You put aside a certain sum of money now for a better future. Investment could be in the form of purchasing an asset or simply by way of keeping money in a bank's account for generating returns in the future. Investments can be short term or long term, depending on your need. The type of investment also depends on the risk and return factors. A proper investment portfolio, that takes into consideration your return-expectations and risk-appetite, can help an investor maximize his/her wealth.

Types of investments include -

Cash investments - savings account, treasury bills and certificate of deposits or CD's are examples of cash investments. They give low returns and are quite risky.

Debt securities - These type of investments generally provide less returns but are also less risky as compared to equity instruments. The returns are normally in the form of fixed periodic payments.

Equities/Stocks - Buying stocks entitles you to become a part-owner of the company. You share profits made by the company. Stocks are high risk-high return investment instruments.

Mutual funds - These are a collective pool of investment by several investors and managed by an AMC [Asset management company]. They bear lower risk as compared to stocks. Various types of MF's are available to suit investor's risk appetite.

Derivatives - These are contracts whose value is derived from an underlying asset. The underlying asset can be equities, commodities or bonds. They are in the form of futures, options and swaps.

Commodities - These include agricultural and industrial commodities. They are high risk and high reward bearing types of investents.

Real estate - It is a long term investment. It includes returns generated from rental income or in the form of capital appreciation.