Do you know that idle money loses value? If you do not invest your money, it loses its purchasing power due to forces like inflation and interest. Of course, every investment is accompanied by a certain degree of risk, and all types of investments may not suit your investment objective & risk appetite. Hence, you should choose the best types of investment that help you achieve your goals.
This blog aims to talk about the seven most popular types of investment in India. Simultaneously, it also sheds light on the peer-to-peer investment based on direct lending that can help you beat all odds and earn high returns.
How to Select the Best Types of Investment?
While there are many investment options available in the market, it can be tricky to choose the one that carries low to moderate risk and provides a high return on investment. Here are four important factors based on which you should make your investment decisions.
- Investment Objectives: You might want to invest your money for various purposes like purchasing an asset, an important life event, or growing your wealth. In each of these cases, you require different types of investment to achieve your goals.
- Risk Appetite: This is one of the most important driving forces for making your investment decisions. The type of investment and your overall returns depend on how much risk you can bear on your investments.
- Investment Horizon: The tenure for which you hold your investment defines the risk involved and the returns that you can earn from them.
- Need of Funds: It is always a better practice to plan your expenditure and fund requirements before investing your money. You should build an emergency or a contingency fund that you can use to avoid a cash crunch during the tenure of your investment.
Different Types of Investment Options
There are various types of investment options available in the market. While some provide higher returns, others are less risky. Similarly, the tenure of investment also impacts your risk and your returns. Here are seven types of investment with high returns that are the most popular among investors in India.
2.1 Equity Shares
- If you want to invest in a high-risk, high-return investment, stock markets are perfect for you.
- While stock market investments are lucrative, they are too risky. Hence, investors with little or no knowledge of its mechanisms should avoid trading in the stock markets.
- Because the price fluctuations are driven by market forces of demand and supply, it is sometimes impossible to predict the movement of the stock markets.
- Without proper knowledge of the markets and the risk involved, it is probably a gamble for the investors.
On the other hand, P2P lending provides a less risky investment option that doesn’t fluctuate with the markets. Due to the fixed interest income, you can easily plan your investments and grow your capital.
2.2 Gold Exchange Traded Funds
- Gold ETFs are dematerialized securities that can be purchased by investors using a Demat Account.
- These securities track the price of physical gold in the market.
- Hence, investing in a gold ETF is like purchasing electronic gold.
- It is a great option for investors who want to invest in gold, but they might feel uncomfortable buying and storing gold.
- The biggest drawback of this type of investment is that there is no diversification. The scope of your investment is limited only to one commodity and so are your returns.
With P2P lending, you can diversify your risk & returns by investing in different borrowers. Unlike Gold ETFs, P2P loans are fixed interest investments and are immune to market fluctuations.
2.3 Mutual Funds
- Mutual Funds pool the money of different investors and invest it in debt and equity instruments.
- Mutual Funds are good for investing in the long term.
- According to their investments, they are categorized into Debt, Equity, and Hybrid Mutual Funds.
- You can purchase the units of a Mutual Fund using your Demat Account just like a normal equity share.
- The biggest risk with Mutual Funds is that they are dependent on market movements and the investment is made by a fund manager on your behalf.
With P2P lending, you get the flexibility to choose the borrowers that suit your preferences. Also, you earn a fixed return that doesn’t depend on market fluctuations.
2.4 Bank Fixed Deposits
- One of the most popular investments in India.
- Provide fixed interest income and are for a fixed tenure ranging from 7 days to 10 years.
- With Non-cumulative fixed deposits, you can enjoy the benefits of compounded returns.
- FDs are almost risk-free.
- The biggest drawback of a fixed deposit is fewer returns that hardly beat the figures of retail inflation.
P2P investments provide fixed returns that are much higher compared to FD interest. You can also earn compounded returns by reinvesting the interest earned.
2.5 Public Provident Fund
- PPF is a long-term investment option that provides fixed returns of 7.1% p.a. that are completely tax-free and are compounded annually.
- You can also get tax deductions from your income up to Rs. 1.50 lakhs every year on PPF investments.
- The minimum tenure of PPF is 15 years and limited withdrawals are allowed only after the completion of 5 years.
- You can take a loan against the collateral of your PPF balance to avoid a cash crunch.
P2P investments cover this drawback by providing investment opportunities ranging from short to long term. You can easily avoid a cash crunch by managing your investments.
2.6 Unit Linked Insurance Plans
- This type of investment provides a dual advantage with insurance and investment benefits.
- A part of the premium is paid for the insurance cover and the remaining portion is invested.
- ULIPs have a minimum lock-in period of 3-5 years.
- These returns on ULIP investments are dependent on market fluctuations.
- The investment decision is made by a fund manager.
With P2P lending, you can earn a fixed return that is unaffected by market fluctuations. Also, you can choose your strategy and invest at your convenience. Unlike ULIP, the full portion of your capital is invested, increasing your overall returns.
2.7 Real Estate
- You can buy real estate for living or investment purposes.
- While it can provide both capital appreciation and rental income, it has some drawbacks.
- The value of real estate grows irregularly. Hence, you cannot predict the market.
- Real estate investments require huge capital investments that you cannot withdraw at your will. This means that it is not a liquid investment.
You can easily start investing in P2P investments with very low capital and compared to real estate; it provides much higher liquidity to the investors. With fixed returns on investment, you do not need to keep a tab on the market rates.
What type of Investment gives the Best Return?
By providing a marketplace for direct lending between the investors and the borrowers, LenDenClub provides the best types of investments for beginners. Here’s why you should invest using LenDenClub:
- An RBI registered NBFC-P2P.
- Start lending at a minimum investment of Rs. 500
- Maximum diversification is allowed by the platform.
- Secured transactions using an Escrow Account managed by a trustee appointed by LenDenClub
- Low Default risk approx. 3-4%.
- High Returns of up to 12% p.a. that do not depend on market fluctuations.
- Suitable even for beginners as no specific expertise is required for investing.
Try out this new-age investment option with LenDenClub. Register Now