Why Should One Invest?

Investment is important to accomplish one’s financial goals and protect from unforeseen expenses that may arise. It is the process wherein saved income of an individual or group of individuals is put into use in a manner ensuring generation of further income.

It is always advisable to classify your investments based on time-period (short/medium/long). One should invest early, regularly and preferably for a longer period of time.

What are various options available for investment?

Various options of investment can broadly be put into two categories:

• 1. Physical Assets which include, Real Estate, Gold, Jewellery, Commodities etc.
• 2. Financial Assets such as Bank Deposits, Post Office Savings, Insurance, PPF, EPF, Equity, Derivative, Bonds, Debentures, Currencies, Mutual Funds etc.

Physical assets can be accessed in a number of ways including traditional physical holdings, futures contracts, D-mat forms, ETFs etc., whereas financial assets can be held with financial institutions such as banks, insurance companies and post-offices or could be given to market exposure in terms of investing in equity, derivative, currency, commodity and bond markets. Each mode of holding has its own advantages and disadvantages but with so many options available, investors of all types should be able to find a product that matches their requirement.

Physical Holding:

This form of holding is illiquid and is able to get good price during downtrend.

Futures Contracts:

This form of holding offers the benefits of leverage and lot of the same advantages of physical holdings. Besides, futures contract has a number of advantages which include liquidity and the ease of entering and exiting market.

Option Contracts:

Option may be preferable and less risky way to access market, but also more complex and require more study to understand elements of volatility and various strike moves. Options allow similar leverage benefits like future contracts and enables users to better define their risks.

Exchange Traded Funds:

ETFs are more or less similar to stocks which can be accessed by equity trading account. An ETF is a paper transaction which cannot be converted into physical.