I was surprised to note how incomplete is the information available around us about the ways to invest money. Most write-ups point us only to investment options and say nothing more about them.
People interested in knowing about the ways to invest money need more information. For example, stocks are an investment option. But how to invest in stocks? Readers would like a bit of handholding to help them find various alternatives to invest in stocks. This article will work as a quick guide.
I have prepared an infographic that will explain the concept visually. I hope beginners especially will find value in this form of explanation.
Generally, people can count investment vehicles at their fingertips. The most discussed alternatives are mutual funds, stocks, gold, and real estate. This know-how is not wrong. But with the use of my infographic and explanations, one can build-up more on this know-how.
This kind of understanding will further assist the readers to invest money with more clarity of concept.
Ways To Invest Money – A Decision Flow
Before we know the ways to invest money, knowledge about the type of assets is essential. Within an asset type, there can be multiple investment alternatives. Based on the asset type and the investment-alternative chosen, people can then pick a convenient way of investing in them.
Allow me to explain further the theory to give more clarity. As an investor, we need to have this kind of understanding.
In the above infographic, the whole process of investment selection has been divided into the following three stages (arranged in the order of the decision flow matrix):
- Asset type: The investor must pick the asset class first. For lay investors like us, there are four types of asset classes available for investing. Equity, debt, gold, and real estate. How to decide between the asset classes? That is what we will read in the next sections.
- Investment options: Within an asset, there are multiple investment options. Few common alternatives are stocks, mutual funds, physical gold, and real estate property, etc. The above infographic list out more for you.
- Ways to invest: Once we have zeroed down on an asset type and an investment option, the next thing is to find ways of investing money in that option. There are broadly two ways of investing money, Online, and Offline. We will know more about them in the next sections.
We as an investor must not divert all funds into one asset type. Why? Because this form of investing is risky. Money must be spread across different assets to ensure suitable diversification.
There is another logic for picking a particular asset type. Most of us use this reasoning to pick our assets. The potential returns that an asset type can yield drives the logic. That is the reason why the majority chase only Equity as it has the potential to earn maximum returns.
But picking investment based only on returns is not right. A combination of high return potential and the need to keep the portfolio diversified is the right approach.
So this explains why we need to have different choices in terms of asset types. In our infographic, we have the following four types of assets:
- Equity: In terms of investments, buying equity deals with investing in stocks of listed companies. There are mainly three types of equity available for investing. (a) Direct stocks, (b) Equity-based mutual funds, and (c) ETF’s. This asset type has maximum return potential. But if not invested properly, the risk of loss is also big.
- Debt: These are risk-free, fixed-income investment vehicles. People whose goal is to generate alternative income can take this route of investing. This asset type is risk-free, but its yield is also low. A combination of debt and equity ensures portfolio diversification.
- Gold: On one hand, gold’s demand is ever rising. On the other hand, it is a limited resource. Why demand for gold always exist? It is because Central Banks of all countries hoard gold. Even IMF and ECB maintain high gold reserves. Even retail investors like to invest in gold (coins, bars, and SGB) and also buy it as jewelry. To date, gold is an alternative (and as a hedge) for the world’s currencies (inflation).
- Real Estate: Like gold, Real Estate is also a hard asset. This hard asset is one of the best monthly income generators. Moreover, it also works as an inflation hedge. That is one reason why the property investment market is almost comparable to the equity market in terms of size.
Investment Options and Ways to Invest Money in them
#1. STOCKS, ETF’s, MUTUAL FUNDS, & REIT’s (Online Trading, Demat, and Net Banking A/C)
The way to invest money in stocks, mutual funds, ETF’s and REITs is through an online trading account. Just open an online trading account and, you are good to go.
Along with an online trading account, two supporting accounts are also necessary. First is a Demat Account. In most cases, online trading account opening comes bundled with a Demat account. So you need not do a separate exercise to open this account.
The second is a net banking account. These days almost everybody has a bank account. If one is not already using net banking, then dial the customer care number. The representative will help to activate the net banking in your bank account.
Supposing you are already using net banking (of any bank). In this case, ask your trading account executive to link your existing net banking account with your new trading account.
In case you want to know more about how to use the trading account to buy shares, mutual funds, among other things, please check this link.
#2. GOI BONDS – NSE GOBID APP
The government of India (GOI) issues bonds for public subscriptions. We can use NSE GOBID APP. Both web and mobile applications can be used for investing in GOI Bonds.
One will first need to register on the NSE GOBID App. The registration process is all online. Verification of PAN is also done online. It means the account open can happen in a jiffy.
After the account registration, now log in and pick the listed T-SEC and Bonds. Then pay the required money online. In most cases, the minimum investment amount will be Rs.10,000 for each T-Sec/bonds.
The purchased Bonds/T-Secs will be credited into the linked Demat account within next couple of days.
Suggested Reading – A complete retirement planning guide. Know how to plan, build and use the accumulated retirement corpus.
#3. DEPOSITS – NET BANKING
There can be two types of deposits. First is the bank deposit, which we also know as Fixed Deposits issued by various banks. The second is corporate deposits issued by Indian companies.
Both types of deposits can be purchased using a Net Banking portal. Suppose you have a bank account in Axis Bank. In this case, you can log in to Axis Bank’s web or mobile app and purchase a fixed deposit (or recurring deposit) issued by Axis Bank.
Investing in Corporate Deposits is slightly tricky. Why? Because there is no common app that can help to identify and then invest in them. Though I’ve found my way of doing it. I’ll share with you.
Visit this source on the internet. It provides a list of few corporate deposits available for investing. You can see the company name and rating of the security listed. Make sure to invest in Corporate Deposits having at least an AAA rating.
You can also read the specific details of the offered company deposits. If you need, you can also call the issuer. If you are satisfied with the scheme, you can download its Application Form. Doing it for the first time? I’ll suggest you visit their nearest branch in person. Fill the application form in front of their representative. Then you can make the online payment (RTGS/NEFT) using net banking.
For the first-timers, it might look like a cumbersome activity. But over time, including corporate deposits in one’s investment portfolio will reap its benefits.
#4. BANK – PHYSICAL GOLD
People who want to invest in gold have the following options:
- Physical Gold – Coins, Bars, and Jewelry.
- Gold ETFs & Gold Funds.
- Sovereign Gold Bond (SGB)
If the idea is to invest in physical gold, the best will be to buy coins or bars from Banks. Gold purchased from banks is certified for purity and weight. Experts do not advise jewelry purchase as a form of investment.
Gold ETF’s, Gold Mutual Funds, and SGB all can be purchased using an online trading account (as discussed above).
Investing in E-Gold is slightly more tricky. I’ll request you to read the details of the process of investing in this article.
#4. PROPERTY – BUILDERS OR AGENTS
Investing in a real estate property has its own pros and cons. People who have become pro in the real estate sector can vouch for its effectiveness. There is a process that must be followed while dealing with property investment. Following the procedure will ensure expected returns.
The real estate sector is still not as organized as a financial market. Hence, to date, there are only two ways of investing in a property. Either approach a builder (for new projects) or reach real estate agents (for a resale property) to locate and buy a property.
One way to locate a good project (new) across India is to use RERA websites. After this, anyways, we will have to approach the builder to invest in their project.
Imagine a mobile app like Amazon or Flipkart assisting us in buying properties upon the click of a button. Of course, the problems will be incorporating home-loan and property registrations, among other things.
A complete infrastructure needs to be built to accomplish such a service. It will need the participation of GOI, Banks, Builders, and Real Estate Agents.
To date, what we have are online portals like MagicBricks, 99Acres, Housing, among others. These portals are great in locating a property. But they cannot help people buy them.
It is also possible to buy a real estate property (resale) without dealing with agents. But it is only possible if you already have located an interested seller. In this case, you can hire an Advocate, and the person can guide you about the next steps of property purchase (till final registration).
If you do not want to get into the hassles of physical property purchase, you can invest in REITs. Check the following two articles on REITs:
There are several ways to invest money in India. Depending on the investment option, one can either invest in them online or offline.
In this article, I’ve tried to elaborate on the ways of investing in equity, risk-free options, gold, and real estate property.
As a rule of thumb, having an active online trading account will satisfy most investment requirements. The exception is physical gold and property investing.
I would personally ignore (as a beginner) investing directly in GOI Bonds using NSE GOBID APP. Why? Because indirectly, we can invest in them through debt-based mutual funds.
Why it’s essential to know about all the ways of investing money? Because to keep our investment portfolio well diversified, we need to invest in multiple asset classes. This information will help to build a balanced, low-risk portfolio.
Great article…I am looking for this type of simple information.
Great work Mani. This article helped me to buy a corporate FD option. Thanks much.
Thank you very much for the article. It is very relevant for beginners in investing. Your article makes it possible not to make the very first mistakes at this stage. I would like to add that it is very important to choose the right investment goal. And continue to act on it. You can choose a short-term goal, and your portfolio should be less risky, and if you choose a long-term goal, you can safely sit out the fall in the stock market and wait for a new rise.
Great article! You have excellently put down the various investment options along with their detailed explanation. This article will be very helpful for beginners who are looking forward to invest. Also, readers who are not from financial background can easily understand the aspects of investment by referring your blog.
I have gone thru abt the articles in your blog… Its helpful for a amateur. Keep going with your work..
Kudos to you, thanks for your hard work. Mani sir.
Great article.. simplified language and detailed information.. well done
Very nicely articulated, if it includes on the % of diversification based on the past returns and duration needed to appreciate. it will complete the article.