Remember those rare times when we have money left behind in the bank account as extra money? Usually, upon discovery, we don’t think twice before we spend this extra money on trivial pleasures, only to regret it later. But there’s a one-word solution for all of you – INVEST! Investing is a brilliant way to multiply your extra funds, which otherwise would just get spent or sit idle until it gets spent. If you are blinking at the term investment, it refers to investing in stocks, bonds, mutuals funds, deposits, etc.
Now the next question is where do I invest this extra money? Well, there is plenty of fish in the sea, and you can pick the one that suits you the best. You can determine which works for you best on the basis of a few basic factors:
- Risk: as an investor, decide if you would like to indulge in more or less risk. High risk usually also means higher chances of earning more gains, but also more chances of losing money. Some examples of high-risk investments include investment in stocks, shares, etc. Low risk translates to investing in safer options, where the returns may be lesser but more secure, for instance, mutual funds, bonds, etc.
- Time: Investors must always keep in mind the time period of investment. If you are investing to gain some quick returns, your choice of the investment may vary from a time when you are looking for long term gains.
- Money: Take a look at how much extra money you have in hand, some investments require a slightly more initial investment, and some others require very minimal amounts.
Here are some common modes of investment for you to begin with:
Buying individual shares in a company that usually gives you ownership is called stock investment. Stock is a high-risk form of investment and isn’t everyone’s cup of tea. It is very volatile in nature, but it is also the type of investment wherein you could receive maximum returns. But that being said, the chances of losses are also equally high. Investors usually receive dividends when the company performs well and the price of the stocks rises.
Bonds refer to investments where the company or government basically borrows money from the investors to raise some capital or to refinance other debts. They are considered fixed-income investments and typically make regular interest payments to investors. The principal is then returned on set maturity date. These have relatively lesser risk as the interest is usually paid on a regular basis
3. Mutual Funds
Investing your extra money in mutual funds, index funds or exchange-traded funds allows you to purchase not one single stock or bond, but rather many investments all at once. Mutual funds build instant diversification by pooling investor money and using it to buy a range of investments that align with the combined goal of the investors. Funds are usually actively managed by a fund manager, making it simpler for the investor. Once you invest in a mutual fund, the fund manager usually takes care of the rest. Check out more on mutual funds here.
4. Real Estate
Real estate is a way to diversify your investment portfolio outside of the usual mix of stocks and bonds. The house you live in isn’t usually calculated as an investment. But buying another house with the aim of earning rental income or capital appreciation is considered a form of investment. The location of the property is an important factor that will determine the value of your property and also the rental that it can earn. However, unlike other asset classes, real estate is highly illiquid and obtaining necessary regulatory approvals is a hard task in India.
In India gold is also a common form of investment amongst a vast population. But possessing gold in the form of jewelry has several concerns like safety, and also its high and variable cost. There is something called ‘making charges’ or ‘wastage’ as well, which refers to the cost of converting raw gold into jewelry, typically ranging between 6-14% of the cost of gold (and may go as high as 25% in case of special designs). You could, however, alternately buy gold coins, or paper gold such as Gold ETF ( Exchange Traded Funds), Sovereign Gold Bonds, etc., but the safety will continue to be a daunting concern.
6. Bank Deposits
Another method by which people invest their extra money includes fixed deposits in banks. This is considered a safe option in India. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) rules, each depositor in a bank is insured up to a maximum of Rs 1 lakh for both principal and interest amount. The investor can also receive interest regularly. However, the interest rate earned is added to one’s income and is taxed as per one’s income slab.
I think it is safe to say that even though there are several ways to make use of your extra money, investing it in stocks, bonds, mutual funds, and similar investment mediums will be most beneficial due to the following reasons:
- Lower initial investments amounts
- Higher chances of doubling your funds ( High rate of returns)
- Wide range of options to choose from as per individual requirements
Thus, real estate, gold and other such means aren’t going to be your best friends. If you intend to multiply your extra money in a safe and consistent manner, investing is the way to go!
Are you interested in doubling that extra money now?
At Roundups you will learn how, where and when to invest your extra money with ease!