An investment is the use of money or capital to purchase an asset or make a venture with the expectation of earning a profit in the future. There are many different types of investments that people can make, including stocks, bonds, mutual funds, real estate, and small businesses. The goal of investing is to put money to work in order to grow it over time.
The level of risk associated with an investment is an important factor to consider when making investment decisions. Some investments, such as stocks, may offer the potential for higher returns but also carry a higher level of risk. Other investments, such as fixed deposits, come with low risks. Shriram Fixed Deposit is a good option if you are looking for investments with lower risks and comparatively higher returns.
Low-Risk Investments
Many individuals choose to invest in low-risk options to attain returns similar to the market while minimizing their exposure to risk. Here, we can explore a selection of prudent investment choices from the wide array of low-risk options available in the market. Let's delve into some low-risk investment opportunities.
Fixed Deposits
Fixed deposits are a great option if you want to make a risk-averse investment. If you wish to open an FD in a bank where you don't hold an account, then you must complete your KYC form and submit documents like address proof, photo ID, etc.
You will need to submit these documents alongside a signed and filled-up application form. You must check the interest rates and maturity date before investing. Multiple types of fixed deposits are offered by financial institutions, such as -
- Cumulative FDs
- Non-cumulative FDs
- Bank deposits
- Company deposits
- Investments for those abroad
- Regular FDs
- Senior citizen FD
- NRI Fixed Deposit
In all instances, opening a fixed deposit does not result in any processing fees or supplementary costs. Fixed Deposits (FDs) are highly regarded as a top choice for potential investments due to their capacity to offer assured returns and secure capital. Fixed Deposits are widely acknowledged and preferred as safe investment avenues, ensuring returns on invested funds. Currently, Shriram Finance offers higher interest rates on Fixed Deposits compared to those offered by banks.
Pro tip: Always calculate your returns before making an investment and make sure they suit your financial needs.
Public Provident Fund (PPF)
Due to its numerous benefits and associated advantages, the investment strategy of Public Provident Fund (PPF) enjoys widespread popularity. PPF serves as a long-term investment approach, providing an opportunity to generate significant and consistent returns. If you are seeking a reliable means to achieve substantial returns over time, PPF is an ideal choice for you.
The primary objective behind opening a PPF account is to ensure the secure preservation of the principal amount. PPF serves as a government-sponsored savings and retirement planning instrument, holding particular significance for individuals lacking access to a structured pension plan. PPF accounts provide reliable annual returns on investments, even during periods of economic downturn.
The minimum duration of a PPF account is 15 years, with the option of extending it in increments of 5 years. You can contribute a minimum of ₹500 and a maximum of ₹1.5 lakhs. Investments exceeding ₹1.5 lakhs in a year will not accrue any interest. PPF enjoys the support of the government, rendering it a risk-free investment option with guaranteed returns.
Mutual Funds
A mutual fund is professionally managed, purchasing securities by pooling money from various investors. It is the ideal option to invest in stocks if you lack the necessary time and effort. There is great scope for diversification, which significantly brings down risks. You also receive uniform and transparent reports for comparison. Above all, it has government oversight.
However, mutual funds provide less control over the timing of 'gains recognition'. The predictable income is also low, with no customisation opportunity.
When investing in mutual funds, it's important to understand the difference between high-risk and low-risk funds. High-risk funds offer the potential for high returns but also come with a greater risk of loss. Here, you need to know that mutual funds having high exposure to small-cap and mid-cap equity funds, high-yield debt securities, or having bad credit ratings are considered as high risk.
Small and medium-sized companies have significant potential for growth, but if they fail to perform or if the market turns bearish, their equity prices plummet. Low-risk funds, on the other hand, offer lower potential returns but come with a lower risk of loss. Investors should consider their risk tolerance and investment goals before choosing which type of fund to invest in. High-quality debt securities bonds are considered as low-risk mutual funds
Life insurance
The primary duty of the main earner is to ensure the family's financial stability. The easiest method to do this is to choose a life insurance plan. A "profits inclusive" plan, known as an endowment offer, is also called life insurance. Whether the insured lives to see the end of the term or not, there will be a payout.
Classical endowment plans are ideal for low-risk participants since they invest largely in fixed-income instruments like corporate bonds and government securities. Life insurance plans protect your family in case of calamities. In case of the death of the insured, the family is paid the entire amount, with bonus earnings.
The invested money yields significant returns either upon the completion of the term or in the event of the insured's demise.
High-Risk Investments
While high-risk investments can potentially generate higher returns compared to other investment options, they also expose your funds to significantly greater risks in case of unfavourable outcomes. Experienced and affluent investors opt for such investments to pursue substantial profits within relatively shorter timeframes.
Direct Stocks
For investors who are willing to take risks, stocks present the greatest opportunity to achieve their financial goals. While every asset holds its own distinct value, equities have consistently outperformed other assets over the long run and should not be overlooked.
One approach to fully capitalize on the value of stocks is through direct investment in the stock market. However, conducting thorough research on businesses, industries, and economic factors requires significant time and effort, and not everyone is inclined to participate in direct investing. In such cases, there is always an alternative option, which will be explained in the following choice, if you are unable to directly invest in the markets.
Investment Funds
In comparison to what you might be able to find on their own, an investment fund offers a wider range of investment choices, more management experience, and lower investment fees. Hedge funds and mutual funds fall under this category.
Hedge Funds
Hedge funds are limited, joint enterprises of private investors whose capital is managed by experienced fund managers. These managers employ a variety of strategies, such as borrowing money or trading in non-traditional assets, to generate returns on investments that are higher than average.
The main advantage of hedge funds is that they are more loosely regulated, with the flexibility to invest in esoteric investment options and derivatives, which other funds cannot. Investment in hedge funds is frequently viewed as dangerous since it typically has a high minimum investment requirement or net worth requirement and frequently targets wealthy clientele. They also entail higher fee payments than other options.
Unit-Linked Insurance Plans(ULIPs)
ULIPs are a versatile instrument avenue that provides investing exposure in bonds or stocks, in addition to insurance coverage. Policyholders must regularly pay premiums for this product.
A portion of the premiums is used to pay for insurance coverage, while the remainder is combined with the assets of other policyholders and invested in either stocks, bonds, or a mix of both equities and bonds. A ULIP is a type of endowment plan where investments are connected to stock markets. They provide you with the chance to choose a product that fits your risk tolerance and investment goals. People with various risk appetites can think about investing in ULIPs because they provide a wide range of alternatives.
Conclusion
The greatest way to invest is in a trustworthy and robust portfolio. There are no pure low-risk or high-risk investments because investing is not a simple black-or-white decision. There is merely a difference in intensity. Thus, it is best to invest in a mix of assets across high-risk and low-risk investments.
Ultimately, the choice between low-risk and high-risk investments depends on an individual's financial goals, risk tolerance, and time horizon. Diversification and a balanced portfolio approach can also be beneficial, as they allow investors to allocate their funds across a mix of low-risk and high-risk assets, aiming for a balance between stability and growth. It is essential for investors to carefully evaluate their own circumstances and seek professional advice when making investment decisions.
The best way to begin your investment journey would be to invest in a fixed deposit. Shriram Fixed Deposits offers high returns, flexible tenure, low minimum deposit, premature withdrawal facility, nomination facility, and complete safety. It is rated ICRA AA + (stable) by ICRA and IND AA + (stable) by India Ratings and Research. The interest rate is also high up to 9.40%* p.a.
FAQs
1. What should I choose, low-risk or high-risk investment?
The choice between low-risk and high-risk investments depends on your personal financial goals, risk tolerance, and investment timeline.
2. What is the difference between low-risk and high-risk investments?
Low-risk investments, such as bonds and savings accounts, tend to have lower returns but also lower volatility. High-risk investments, such as stocks and real estate, tend to have higher returns but also higher volatility.
3. What types of investments are considered high-risk?
High-risk investments include stocks, real estate, venture capital and hedge funds. These types of investments are characterised by higher returns but also higher volatility, which makes them well-suited for people who have a long-term investment horizon and a higher risk tolerance.
4. How do I balance risk and reward in my investment portfolio?
Diversifying your portfolio by including a mix of both low-risk and high-risk investments is the key to balancing risk and reward. This will help you achieve your investment goals while minimising the risk of major losses.
Key Highlights
- Understanding the risk associated with any investment option is a must for every investor.
- There are multiple investment options, from low-risk to high-risk, and you can only make the right decision by considering your risk tolerance.
- Fixed deposits are an ideal investment option as they give high returns at low risk.
- A diversified investment portfolio is key to saving yourself from big losses.
