Ways of Investments in Share Market
Investment is the way by which you can earn passive income.
Today we will talk about the different ways of Investments by which you can earn passive income and beat the inflation with good returns.
Fixed deposit (FD)
A fixed deposit is giving interest of around 7% nowadays. These returns are taxable and the Inflation rate of the last 10 years is around 5%, which means to maintain the value of your money you have to earn at least 5% after-tax return.
Generally, the return of saving accounts is below 5%, so it is not profitable to leave your money in saving accounts.
FD is just protecting you from inflation, so it is not an attractive investment. After-tax return of FD will give you around 5% to 6% returns. It is not that good.
Government bonds are very secure investments. In my opinion, if you have doubt to invest between fixed deposit or government bonds than I recommend you to go with government bonds because there are a lot of government bonds in which you get higher returns then FD, also you may get tax benefits to depend on the type of that bond.
A government bond is the safest investment because the government gives you a guarantee on this, so whatever the condition is but the government will return your money in every situation.
Also, Read About-: Share Market Beginner
The index fund is a very good way to earn better returns and you don’t need of any deep analysis of the market to invest in index funds if you have the basic knowledge of share market and you believe that the economy of the country will increase in future then you can invest in index funds.
If we talk about Sensex then in the last 10 years Sensex gives 16% compounded annual returns, which is a very good return, mostly of active mutual funds cannot able to give that many results.
Whenever you invest in an index fund (example- Sensex and Nifty). Your money will diversify according to the weightage of companies listed in that index fund.
You can invest a small amount every month through SIP (Systematic Investment Plan) in an index fund.
Mutual fund(Share Market)
Equity mutual funds are famous in India, so many peoples are invested in active equity mutual funds. There is a fund manager to manage your money in mutual funds. You have to do analysis before investing in active equity mutual funds and also have to do an analysis of the mutual fund manager, who will manage your mutual fund. If you believe in the skill set of that fund manager and the past track record was good then you can take step to invest in that mutual fund. Most of the times mutual funds beat the return of index fund and sometimes not.
The difference in an index fund and active equity mutual fund is that the expense ratio of mutual funds is higher than index funds because you have to pay the fees to mutual funds for managing your money. And there is a neglectable expense in an index fund.
Famous investor Warren Buffett also supports index funds more than mutual funds.
Hedge Fund ( Share Market )
The hedge fund is an aggressive way to invest money. Sometimes the manager of a hedge fund also invests in the derivative market.
In mutual funds, you can start with 500 rupees but to invests, in a Hedge fund, you must have the high net worth. A hedge fund is not so popular in India but in United states Hedge fund is so popular. Because the United States has so much high net worth investors.
So, now we have seen a lot of ways to invest money in which you don’t have to do a detailed analysis. You just have to invest your money. For example, in mutual funds which share to buy and sell is not your job, this will do fund manager similarly in government bonds you don’t have to do anything so mutual fund, Hedge fund, index fund are the indirect ways to invest money.
In the Direct Investment Stock market and startups, investment takes place so from now onwards we will talk about the direct way of investments. So, from the next chapter, we will talk about the stock market and try to understand it from basics so that you can able to know the full concept of the stock market and capital market.