Thursday, August 4, 2011

Investment Options - Where to Invest Money for Maximum Return

There are many investment options available today. One has to pick the right investment tool based upon his or her saving, investment capital, risk profile etc. If you can handle the risk of volatility in stare market then you can invest in stocks. If you don't want to take that risk then you can invest fixed income securities.

When selecting the best and right investment option, one has to remember that risk and returns are directly proportional to each other. The higher the risk, the higher the returns. The more risk you take, the more money you will make.


Below is a brief explanation of different investment options:


Investment Options

Equities


Investment in shares of companies is called investing in equities. One can buy or sell stocks from stock exchanges (secondary market) or via IPOs – Initial Public Offerings (primary market). You can earn revenue from equities in following forms:
  1. Dividend: Periodic payments made out of the company's profits.
  2. Growth: The price of a stock appreciates and you can sell them for profit.
If you can manage your portfolio well with precise timing then you can expect a return between 20% to 40% or more. Selecting the right company and the right stock at the right time is the secret to success in this kind of investment. Bad selection of shares and wrong timing can even result in loss.

Bonds


It is an instrument for fixed income(debt). Bonds are issued by governments for a period of more than 1 year for raising capital. A bond is a promise to repay the principal along with fixed rate of interest on a specified date (maturity date). Returns on such investment is much less than equities but it is safe and risk-free.

Other such fixed income instruments are - bank fixed deposits, debentures, preference shares etc.

Certificate of Deposits


These are short - to-medium-term interest bearing, debt instruments offered by banks. These are low-risk, low-return instruments. Savings account, fixed deposits, recurring deposits etc are some examples. Average rate of return is generally between 4-8 %.


Mutual Fund


These are open and close ended funds operated by investment companies. These companies raise money from general investors and invests in a group of assets with a predefined set of objectives. These investment companies hire experts and professionals for money management. Mutual funds are great substitutes for people who don't want to take big risk by directly investing their money in the share market. Mutual funds can generate a return of around 15% – 30 % which is much more that bank deposits and bonds.

Cash Equivalents


Instruments like treasury bills and money market funds are equivalent to cash and can be easily converted into cash as and when required.

Other Investment Options


There are several other investment options like gold, silver, real estate, foreign currency etc.

References & Resources:

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