With global stock markets resembling the path of an epinephrine induced Electrocardiogram, it's quite obvious that small investors look for other modes of investment that promises greater, low risk and stable returns. Traditionally, people invest part of their earnings to meet unforeseen circumstances. And one such preferred mode of investment is "Equities" which has seen a consistent growth over past few years until 2008 global recession that had it's mark on almost every stock market in the World with varying impacts. It is only then that people realized the importance of alternate modes of investment. Here are few other preferred alternate modes of investment to Equities with respect to Indian market conditions.
1. Fixed Deposits: Banks accumulate the major chunk of the fixed deposits, though there are other corporate fixed deposits that offer a better return but only with a little greater risk. The greatest advantage with fixed deposits is that the return on investment, though less compared to other investments, is guaranteed. The average ROI on fixed deposits is 8-12% depending on where you invest. Though fixed deposits seem to be flawless, there is an inherent disadvantage with this type of investment. Since ROI ranges between 8-12%, and average annual inflation hovering around 7%, the effective ROI that one can get through fixed deposits is around 2-3%. After all, it's the purchasing power that matters at the end of the day.
2. External Financing: For a 120 billion people strong country, and with a rapid economy where new businesses emerge everyday, banks and other NBFCs cannot satiate the hunger of businessmen, entrepreneurs and other household investors. Hence external financing emerged and had grown at an unprecedented rate after LPG [Liberalization/Globalization/Privatization] phase of the country in 1991-92. The conspicuous advantage with the external financing is that the interest rates offered is much higher than the standard bank rates and hence the gain is more. Also the lender can charge the interest at his will. But the risk here is much higher as the market is not regulated by any recognized body and there is a fair chance of borrower defaulting on the payment, though this can be minimized to an extent by mortgaging.
3. Business: A rather unusual one, but nonetheless an alternate mode of investment is setting up a business on one's own. The profits are indefinite here and there is a likely chance of losing the principal amount too if one isn't cautious. It takes a lot to set up a business on one's own but the returns are equally attractive if one takes prudence in various aspects of running the business. Though it seems to be an attractive one, one has to invest a lot of time to own a successful business, hence not advisable to those who seek short term gains and a heftily paid jobs :)
4. Government Bonds: These, like fixed deposits are low interest yielding investments. But, the risk is absolutely zero as it's the government with whom you are investing. The ROI hovers around 10% per year. In a volatile market, these are the best source of investment.
5.Mutual Funds: Generally mutual funds are owned by large investment companies and hedge funds. These are managed by experienced fund managers [typically those who graduate from top B-schools and with enough experience in investment banking]. The basic difference between investing in mutual funds and equities is that, in mutual funds your money is placed with fund manager who acts on behalf of you as to what shares to invest in, whereas, you invest in equities on your own in case of general stock market trading. Mutual funds are classified based on the sectors they invest in. There are low risk mutual funds i.e., index based mutual funds that invest in shares that form a stock market index. The choice of mutual funds depends on the risk one is willing to take and the ROI.
6. Gold: Gold has traditionally been indifferent to the markets. And, in countries such as India, Gold is always a safe bet. With the arrival of Gold ETFs, there is no need for physical transfer of gold and hence risk of loss is minimized greatly. Now, Gold can be traded through exchange traded funds [ETFs] just like other equities and hence is comparable with it.
7. Realty: Investing on land and houses also is one of the preferred investments among Indians. The risk involved in realty is too high as there are various factors, political, economical and geographic that influence the land rates, but so are high profits accompanied with realty. While investing in realty, one must take extreme caution in choosing where and what one is investing in. The thumb rule of realty is to invest in tier 2/tier 3 cities where the scope of growth is greater.
There are many more investments that one can make to reap benefits on the surplus money but, remember, huge profits always come with equally proportional risk and one must choose his mode of investment based on his needs.
1. Fixed Deposits: Banks accumulate the major chunk of the fixed deposits, though there are other corporate fixed deposits that offer a better return but only with a little greater risk. The greatest advantage with fixed deposits is that the return on investment, though less compared to other investments, is guaranteed. The average ROI on fixed deposits is 8-12% depending on where you invest. Though fixed deposits seem to be flawless, there is an inherent disadvantage with this type of investment. Since ROI ranges between 8-12%, and average annual inflation hovering around 7%, the effective ROI that one can get through fixed deposits is around 2-3%. After all, it's the purchasing power that matters at the end of the day.
2. External Financing: For a 120 billion people strong country, and with a rapid economy where new businesses emerge everyday, banks and other NBFCs cannot satiate the hunger of businessmen, entrepreneurs and other household investors. Hence external financing emerged and had grown at an unprecedented rate after LPG [Liberalization/Globalization/Privatization] phase of the country in 1991-92. The conspicuous advantage with the external financing is that the interest rates offered is much higher than the standard bank rates and hence the gain is more. Also the lender can charge the interest at his will. But the risk here is much higher as the market is not regulated by any recognized body and there is a fair chance of borrower defaulting on the payment, though this can be minimized to an extent by mortgaging.
3. Business: A rather unusual one, but nonetheless an alternate mode of investment is setting up a business on one's own. The profits are indefinite here and there is a likely chance of losing the principal amount too if one isn't cautious. It takes a lot to set up a business on one's own but the returns are equally attractive if one takes prudence in various aspects of running the business. Though it seems to be an attractive one, one has to invest a lot of time to own a successful business, hence not advisable to those who seek short term gains and a heftily paid jobs :)
4. Government Bonds: These, like fixed deposits are low interest yielding investments. But, the risk is absolutely zero as it's the government with whom you are investing. The ROI hovers around 10% per year. In a volatile market, these are the best source of investment.5.Mutual Funds: Generally mutual funds are owned by large investment companies and hedge funds. These are managed by experienced fund managers [typically those who graduate from top B-schools and with enough experience in investment banking]. The basic difference between investing in mutual funds and equities is that, in mutual funds your money is placed with fund manager who acts on behalf of you as to what shares to invest in, whereas, you invest in equities on your own in case of general stock market trading. Mutual funds are classified based on the sectors they invest in. There are low risk mutual funds i.e., index based mutual funds that invest in shares that form a stock market index. The choice of mutual funds depends on the risk one is willing to take and the ROI.
6. Gold: Gold has traditionally been indifferent to the markets. And, in countries such as India, Gold is always a safe bet. With the arrival of Gold ETFs, there is no need for physical transfer of gold and hence risk of loss is minimized greatly. Now, Gold can be traded through exchange traded funds [ETFs] just like other equities and hence is comparable with it.7. Realty: Investing on land and houses also is one of the preferred investments among Indians. The risk involved in realty is too high as there are various factors, political, economical and geographic that influence the land rates, but so are high profits accompanied with realty. While investing in realty, one must take extreme caution in choosing where and what one is investing in. The thumb rule of realty is to invest in tier 2/tier 3 cities where the scope of growth is greater.
There are many more investments that one can make to reap benefits on the surplus money but, remember, huge profits always come with equally proportional risk and one must choose his mode of investment based on his needs.
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