Saving is the surplus of our income over our spending. normally, this lies in the savings bank account or fixed deposits with a bank. The money is very secure, earning a little rate of interest and it can be in hand as and when necessary (high liquidity). in contrast, this money could be invested for meeting long-term goals. whereas some investments may rise or fall in value over time, prudent investments would earn a lot more than the bank's savings account.
It is significant to take into account the effects of inflation on our investments. Savings rarely beat the inflation (rises in prices ) rate; investments can.
fundamentally, the variation between savings and investment is that savings are simply idle cash whilst investments help our funds to raise over a period of time. One can meet his short-term requirements with his savings but to meet his long-term goals, he desires to make investments. Savings primarily help to protect the principal while investments help to make returns beyond the inflation rate.
VariousAvenues and Investments Alternative
Investment
Avenues
Investment in any of the alternatives depends on the requirements
of the investor. All have different needs. Before investing, these
alternatives of investments need to be analyzed in terms of their risk, return,
term, convenience, liquidity etc.
Equity Shares
Debentures
or Bonds
Debentures or bonds
are long-term investment options with a fixed stream of cash flows depending on
the quoted rate of interest. They are considered relatively less risky. An
amount of risk involved in debentures or bonds is dependent upon who the issuer
is .Following alternatives are available under debentures or bonds:- Government
securities
- Savings
bonds
- Public
Sector Units bonds
- Debentures
of private sector companies
- Preference
shares
Money
Market Instruments
Money market instruments are just like debentures but the time the period is very less. It is generally less than 1 year. Corporate entities can
utilize their idle working
capital by investing in money market instruments. Some of the
money market instruments are
- Treasury
Bills
- Commercial Paper
- Certificate of Deposits
Mutual
Funds
Mutual funds are an
easy and tension free way of investment and it automatically diversifies the
investments. In the case of an open-ended mutual fund scheme, the mutual fund is giving an
assurance to investors that mutual funds will give support to the secondary market .In mutual funds also, we can select among the following types
of portfolios:
- Equity
Schemes
- Debt
Schemes
- Balanced
Schemes
- Sector
Specific Schemes etc.
LifeInsurance and General Insurance
They are one of the important parts of good investment
portfolios. Life insurance is an investment for the security of life. The main objective of other investment avenues is to earn a return but the primary objective of life insurance is to secure our families against the unfortunate event
of our death. It is popular among individuals. Other kinds of general insurances
are useful for corporates. There are different types of insurances which areas
follows:
- Endowment
Insurance Policy
- Money
Back Policy
- Whole
Life Policy
- Term
Insurance Policy
- General
Insurance for any kind of assets.
Real
Estate
Every investor has some part of their portfolio invested in real
assets. Almost
every individual and corporate investor invest in residential and office
buildings respectively. Apart from these, others include:
- Agricultural
Land
- Semi-Urban
Land
- Commercial
Property
- Raw
House
- Farm
House etc
Precious
Objects
Precious objects include gold, silver and other precious stones
like the diamond. Some artistic people invest in art objects like paintings,
ancient coins etc.
Derivatives
Derivatives mean indirect investments in the assets. The derivatives market is growing at a tremendous speed. The important benefit of
investing in derivatives is that it leverages the investment, manages the risk
and helps in doing speculation. Derivatives include:
- Forwards
- Futures
- Options
- Swaps
etc
Non-Marketable
Securities
Non-marketable securities are those securities that cannot be
liquidated in the financial markets. Such securities include:
- Bank
Deposits
- Post
Office Deposits
- Company
Deposits
- Provident
Fund Deposits
