Well in my earlier post I have written about investing in wealth creating or growing assets. So obvious question is what are various avenues of wealth creating instruments.
Wealth creation assets can be broadly classified into asset classes as mentioned below:
- Equity
- Debt
- Intangible assets like Insurance e.g. term cover, medical etc.
- Real Estate
- Gold
- Others e.g. art, mints etc.
Appended below if brief outline on each of the above classes going forward I will go into details of each asset classes some of its flavors, returns expected from them, risk-reward ratios, pros and cons etc.
Equities:
When compared to all other asset class, investing in equity is riskier. However as a well known saying goes "higher the risk, higher are the returns". Investing in equities world over has been far more rewarding than one can imagine. Across the world and in India equity investments have outperformed almost every other asset class in the long run.
Debt:
Debt instruments in India typically include company bond, fixed deposits, debt mutual funds, government securities, small saving schemes like like National Saving Certificates, Kisan Vikas Patra etc. Debt are comparatively far less riskier than equities and suitable for person with low risk tolerance instruments, good and much safer for shorty term investment, fixed returns (usually not always).
Insurance:
Insurance is typically to cover for risks, liabilities created during earning years, to take care of old age or retirement, pensions etc. Usually lay man gets confused between Investment and Insurance. Generally its a good practice to keep both of them separate. Insurance should be looked upon as an instrument to cover for liabilities or as a risk mitigation plan for unforeseen circumstances. They are lots of different instrument within Insurance products like ULIP, Pure risk cover, health insurance, group insurance, pensions etc.
Real Estate:
Real estate is an attractive avenue to park fund for long term. Though it has inherent risks like huge investment, still an unorganized sector for small investor or largely under developed market in India though Financial Institutions are coming out with REIT, Real Estate Mutual fund etc. but ticket size of investment are quite huge, inefficient tax benefits on returns, low liquidity etc. Can act as a source of regular income, hedge against inflation, portfolio diversification etc.
Gold:
One of the most liked commodity for investment in India. Age old tradition as safe bet against calamity, inflation war etc. Gold is universally accepted commodity, its kind of international currency .Gold provides good and must diversification required in ones portfolio. One of safest avenues of investment with good returns over long period of time.
Others:
Other investment avenues include investment in Art, Mints, Stamps, Antiques, Private Equity etc.
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