Finding high power investment ideas is the key for every individual. This is especially true in case of novice investors looking to park their hard earned funds into assets with a sole goal of meeting long term financial goals. Investing in equity
markets is the easiest and more alluring way out for such individuals. However, apart from buying shares directly, other options like investing in mutual funds, elss investment, sip investment
also need to be considered for a well-diversified and efficient portfolio of financial assets.
Here is a quick guide for understanding the basics of high power investment ideas:
Stocks or Equity Shares:
Directly buying stocks
or equity shares
is the most widely used investment avenue across the board. Equity markets have tremendous potential to generate great returns over long term. The benchmark domestic stock index NIFTY50 has given steady returns of around 12% on a CAGR basis over the last two decades. Investing in shares that are traded either at Bombay Stock Exchange (BSE) or National Stock Exchange (NSE) refers to secondary market. One may diversify across sectors and market capitalisations to hedge against the risk of investing directly in stocks.
Initial public offering: Before a company’s shares are available for trading in the secondary market, they have to be listed to be listed on a stock exchange. The process by which shares are initially made available to the public is called initial public offering (IPO), i.e., the primary market. A public issue is an offer made to the public to subscribe to the share capital of a company at a certain issue price. Once this is done, the company allots shares to the applicants as per the prescribed rules and regulations.
Equity Mutual Funds: Investing in Mutual funds
has emerged as one of the most popular long term investment vehicles in recent years. The primary advantage which mutual funds offer is that your investments are managed by asset management companies that are regulated by Securities and Exchange Board of India (SEBI). Professionally run fund houses offer a secure edge given that the fund managers are highly experienced. Equity funds could be of various types based on the market capitalisation of stocks they invest in i.e. large caps, mid-cap and small-cap schemes. Assets managed by the Indian mutual fund industry have grown from Rs. 24.09 lakh crore in December 2018 to Rs. 27.26 lakh crore in December 2019, recording a 13.18% growth.
Debt Mutual Funds:
While equity mutual funds invest
in shares of publicly listed companies, debt funds invest in fixed income securities issued by the government and companies. These fixed income securities include corporate bonds, government securities, treasury bills, money market instruments etc. These funds offer an opportunity to earn interest income and capital appreciation and thus act as a good diversifier for your overall mutual fund holdings.
Equity-linked savings scheme (ELSS): ELSS
is similar to any diversified equity mutual fund
. The minimum investment in equity and equity-related instruments in these funds has to be at least 80% of total assets. These funds offer stands a tax benefit on the amount invested and thereby has a lock-in period for funds invested for a period of 3-years.
Real Estate: Real estate has conventionally been a very popular mode investing funds in India. While the domestic real estate market has been rather tepid over the last few quarters, the plethora of policy initiatives taken by the government and a strong demographic profile in India means that the long term potential is solid for the market. Finance Minister Nirmala Sitharaman recently unveiled Rs 102 lakh crore of infrastructure projects that will be implemented in the next five years as part of the government`s spending push in the infrastructure sector. This is a big positive for a sector like real estate.
Gold: COMEX Gold futures have had a very good time in 2019, rallying by around 18%. The metal hit a more than six year high above $1560 per ounce in August-September but repeated attempts to extend the gains turned futile and the counter eased thereafter. Domestic prices are lingering around Rs 40000 per 10 grams and there is a likelihood that domestic Gold imports may rebound in 2020 from a three-year low. Long term prospects for Gold appear supportive given the massive surge in global debt levels. Global debt hit a record high of over $250 trillion in the first half of 2019. Rising debt across the world could support Gold as a safe haven in coming years. Global central bank’s Gold holdings have already hit the highest level in nearly five decades.
Remember that successful investment requires efficient planning. Putting your money in various financial instruments plays a key role in securing your future. Compounding plays a key role in enhancing the returns on your investments and all the above mentioned assets are likely to offer substantial returns when one starts investing in them from an early age. However, investments in equity
or stock markets whether directly or through the mutual funds have to form a sizable chunk of your overall financial holdings if you want superior long term returns.