Investment in Stock Market
In the initial days of my banking career, I remember I used to come across a very repetitive question from my newbie customer, What types of Investment does Stock Market can offer us. Many of them like to understand types of investment in the stock market with the latest example with their track records. Therefore in this article, I will be covering the types of investments you can opt-in for 2022 for your financial planning.
We invest in stocks to grow our wealth over time. While some people consider stocks to be a risky investment, several studies have shown that investing in the appropriate stocks for a long time (five to ten years) can give inflation-beating returns, making them a better option than real estate or gold.
When it comes to investing in the stock market, people have short-term strategies as well. While stocks can be quite volatile in a short period, buying the proper stocks can help traders win quickly. One of the keys to success in the stock market is proper financial planning. To do proper financial planning, one should diversify their funds into a kitty of investment avenues to mitigate the risk.
How Many Types of Investment in Stock Market?
Now we have understood how we can ensure success in Stock Market. Let’s deep dive into the type of investment wherein you can park your money in the stock market. Here is the list of investments you can deal in:
Types of Investment in Stock Market
The first kind of investment one can think of is investing in shares. Generally, there are two ways to invest in shares is by the primary or secondary market. Primary Market is the market when a company enters the share market for the first time to raise capital against the issue of shares. Whereas, the secondary market is the market where the shares get listed on the stock exchange and are ready to get traded further. In other words, it refers to the trade where one investor buys shares from another investor at the market price instead of directly from the company owners at the listing price.
Shares are thus, a certificate of ownership of a corporation. Thus, as a stockholder, you share a portion of the profit the company may make as well as a portion of the loss a company may take. As the company keeps doing better, your stocks will increase in value
Another way of investing in the stock market is by buying bonds. Bonds are generally issued by companies to raise money for undertaking new projects. It’s more like a loan taken from investors in exchange for the timely payment of interest. However, it does not offer any ownership of the company. And the interest or the coupon rate is calculated on the face value of the bond. While issuing the bonds, the company defines the maturity date i.e. when they will pay back the principal amount. This debt class is suitable for investors looking for timely & guaranteed returns.
It’s an indirect way of investing in the stock market in case you don’t possess enough knowledge about the financial market. AMCs pool money from a collection of investors and invest on their behalf in a bunch of security in exchange for the units of mutual funds. While investing in mutual funds, you should read the objective of the scheme outlined by AMC so that estimated returns meet your financial objectives and your risk profile. The funds are managed by professionally qualified fund managers. In case, you don’t understand the market or don’t have sufficient time to analyze the statistics the best investment player will be a mutual fund by paying a fund management fee to the mutual fund companies.
In case you’re not able to time the right movement of the stocks then derivatives come in very handy. It’s like a contract between two or more parties to trade in the future at a price you fix today. Forwards, futures, options, and swaps are the four most prevalent derivative instruments. It is called derivatives as it derives its value from underlying assets such as bonds, shares, commodities, indices, etc.
An ETF (exchange-traded fund) is a pooled investment that works similarly to a mutual fund. ETFs often track a certain index, sector, commodity, or another asset, but unlike mutual funds, they can be bought and sold on a stock exchange just like a regular stock. ETFs (Exchange Traded Funds) are index funds that are listed and traded on stock exchanges and are managed passively. It tracks the appropriate index and duplicates its returns, whereas mutual funds strive to produce alpha by beating a market benchmark. However, the expense ratio will be comparatively low as compared to mutual funds.
Stock investing is a fantastic strategy to get the growth you desire. You must first establish your financial objectives and then begin investing in various investment products. In addition, you must also decide on the length of time you wish to retain your investment in a certain stock. You can get a good return on a 7-10 year investment. All the best for your journey in the stock market.