If you are planning to invest your money for the first time to earn highest ROI then you need to be aware of the different classes of assets that you can invest in. An asset class is a group of securities that exhibit similar characteristics, behaves similarly in market place and give similar ROI. Let us look at different classes of assets available for an investor –
- Cash and Cash Equivalents – Asset classes for first time investors
It is the most liquid form of asset class that you can invest in. It includes physical cash, money in your saving accounts, short term T-Bills etc. You can easily convert these instruments for your needs but these instruments give a minimum or no possible ROI.
- Fixed Income – As the name suggests these asset classes gives a fixed income after a certain interval of time. These asset classes usually offer a rate of investment that will not be able to beat inflation in short to longer term. Fixed income instruments would include Bank fixed deposits, Recurring deposits, PPF, Post office saving schemes, Endowment plans etc. If you wants to earn a moderate ROI but at the same time don’t want to risk your money, then you must invest your money in these instruments.
- Equity – Equity is one asset class that is having highest risk with possibility of highest ROI. Equity refers to stocks and shares that you buy as a part of ownership in a company. This instrument is best suited for an individual with high risk taking ability. Equities would include investment options like direct equities/stocks, Equity mutual funds, equity linked saving scheme, Exchange traded fund etc.
- Real Estate – Real estate investment is one of the most illiquid investments present in Indian market. You need to invest a large amount of money at the beginning to purchase a property. This form of investment is quit cyclical in nature and the rate of investment cannot be predicted with certainty. All major Indian cities are facing a slump in real estate market and ROI has been in single digits in all major cities in past few years.
- Commodities – Commodities refer to the physical goods that can be bought and sold in the market. Gold and silver commodities are one of the most popular commodities in India. Indians have been investing in gold and silver since ages.
- Peer to peer lending – It is one of the most recent addition to investment asset classes available to investors. It is bases on social lending concept in which a group of lenders crowd fund a borrower. An investor in peer to peer lending can earn a ROI between pretax returns of 18% to 25% per year, which translates to 12% to 17% post tax returns per year.
Let us look at post tax returns offered by different asset classes in past few years-
Fig: Post tax returns of different asset classes
Before, you start investing in different asset classes on your own, you should make sure your decision about following parameters-
- Your risk taking appetite
- Your investment goal
- Your investment horizon.
As a first time investor it is very important to gain knowledge about various asset classes that are available for you to invest. It is very easy for first time investors to fall prey for schemes like offering a extra ordinary rate of investment in short interval of time. You shouldn’t make your investment decisions based on these false claims. It is very important to do your own research before you invest and always remember a quote about investment – ”No risk, No return”.