Investment options available in Market other than Stock Market

Invest­ments mean putting money in order to earn more money. It is a process which can help an investor to meet finan­cial goals like buy­ing a new house, pay­ing for col­lege edu­ca­tion of chil­dren, enjoy­ing a com­fort­able retire­ment, or what­ever is impor­tant to the investor. There are many ways to invest the money, which are different from each other depending on there on risk factor and returns they provide. The single greatest factor, by far, in growing your long-term wealth is the rate of return you get on your investment. But the need is to decide about how much a per­son wants to invest and where. There are times, though, when you may need to park your money someplace for a short time, even though you won't get very good returns.

In order to invest wisely, an investor should know the var­i­ous invest­ment options thor­oughly and their rel­a­tive risk exposures and he has to find the characteristics and other details of those investments methods.

Fea­tures of Investments:

1. Risk: Risk is a mea­sure of the pos­si­bil­ity that the investor will not receive an expected return on his investment.
2. Return: A major fac­tor influ­enc­ing the pat­tern of invest­ment is its return, which is the income plus cap­i­tal appre­ci­a­tion. What can you expect to get back on your investment?
3. Safety: The safety of the cap­i­tal is the cer­tainty of the return on the cap­i­tal with­out the loss of money or time involved.
4. Liq­uid­ity: If the invest­ment made is eas­ily real­iz­able, saleable or mar­ketable, then it is said to be liquid.

Ex: If you have Rs 1 lac. and you do not invest and keep it for a period of 5 years. Suppose if the inflation rate is 5% per annum, then the value of Rs 1 lac. will become Rs 75,000/-. You will still have Rs 1 lac. in your account but with that Rs. 1 lac. you can only buy goods/services worth Rs 75,000/- after 5 years.

So do not keep your money idle. Invest money in instruments which gives a return more than the inflation rate. The instrument where the money can be invested can be selected based on the risk appetite and the investment objective described above. If you are not sure where to invest, first check the inflation rate and find out instruments which give returns more than the inflation rate. By investing, you have taken care of the inflation rate and your investment amount has increased.

·         Investments in Stock Market:

The India stock and investment market is mainly divided into 2 parts, namely the capital market and the money market. The stock market is an important part of the capital market in the country through which one can carry out the transaction of capital. It is usually done through the means of direct financing through the use of security and investment. Indian Stock market is very fluctuating. A smart portfolio positioned for long-term growth includes strong stocks from different industries. Before investing in stock market one should be prepared to assume risk equivalent to sum invested in the market. Investing in share market yields higher profits. Influenced by unanticipated turn of market events, stock market to some extent cannot be considered as the safest investment options. However, to accrue higher gains, an investor must update himself on the recent stock market news and events. Invest­ing in the stock mar­ket can prove to be a gam­ble as it is sub­ject to vast fluctuations.

Stock Market is not the only option for investing your money. There are many other investment options which are also available in the market like Bonds, Mutual Funds, SIP and real Estate etc. that are more safer than Stock Market.

v  Investments in Bonds:

Bonds are debt instru­ments in which the issuer promises a fixed rate of return (inter­est) to the holder and repay the prin­ci­pal after a cer­tain period of time. It is a for­mal con­tract between the investor and the bor­rower stat­ing that the bor­rower will repay the bor­rowed money with inter­est to the investor. Bonds are issued by a com­pany, finan­cial insti­tu­tion or gov­ern­ment. Based on the matu­rity period, bonds can be divided into short term bonds and long term bonds.
A company needs fund to expand into new markets, new products etc, while government need money for everything from infrastructure to social programs. In such scenarios they issue Bonds. A bond is nothing more than a loan for which you are the lender (provider) and the organization that sells a bond is known as the issuer.
Bonds come in various forms. They're known as "fixed-income" securities because the amount of income the bond generates each year is "fixed," or set, when the bond is sold. From an investor's point of view, bonds are similar to CDs, except that the government or corporations issue them, instead of banks.
This is the safest and low returns of investment type. This type of investment is mostly preferred by persons who don’t wish to risk their money and expect low returns.

      Few ter­mi­nolo­gies of a bond:

1) Issuer: Issuer of a bond is the bor­rower of cap­i­tal or the debtor.
2) Holder: Holder of a bond is the cred­i­tor of cap­i­tal or the lender.
3) Coupon: It is the inter­est rate on the bond.

4) Maturity: It is the date on which the issuer pays the principal amount to the holder.

5) Tenor: The period starting from the date of issue of bond till the date of maturity of the bond is called tenor.

6) Yield: It is the total returns on investment in bonds.

      Advantages of Investing in Bonds:

While bonds traditionally earn lower returns than stocks, that does not mean there isn't a place in your portfolio for bonds. The most common reason for investors to purchase bonds is below:

• Diversification - Bonds tend to be less volatile than stocks and can therefore stabilize the value of your portfolio during times when the stock market struggles. Having a combination of both types of investments over the long term can often provide comparable returns with less risk than a portfolio devoted to only one type of investment.
• Stability - If investors know they will need access to large sums of money in the near future-for example, to pay for college, a home, etc.-then it does not make sense to place that money in a highly volatile investment like stocks. Because the majority of the return on bonds comes from the interest payments (the coupon payments), fluctuations in the price of a bond will have little impact on the value of the investment.
• Consistent Income - Unlike stock dividends, coupon payments are consistently distributed at regular intervals. Individuals seeking this consistent income might find bonds a better alternative than the dividend payments some stocks offer.
• Taxes - Payments from some bonds are exempt from federal taxes. For individuals in high tax brackets, these investments are often an excellent vehicle for their portfolio.

      Non benefits of Bonds:

While they are usually considered much safer than stocks, bonds can still lose value while you hold them. Here is a brief look at some of the risks associated with bonds:

• Interest rate risk: Bond prices are inversely related to interest rates, so if interest rates increase, the price of the bond will decrease. The interest rate on a bond is set at the time it is issued. Generally, the coupon will reflect interest rates at the time of issuance. However, if interest rates increase, people will be unwilling to purchase the bonds in the secondary market at the earlier rate. For example, if the coupon is set at 6% and interest rates in the market are at 7%, the interest rate on the bond is well below what you could get from a different investment. Therefore, the price of the bond will decrease so that the capital appreciation will make up for the difference in interest rates. (For this reason, it can be risky to buy long-term bonds during periods of low interest rates.)
• Credit Risk: Just as individuals occasionally default on their loans or mortgages, some organizations that issue bonds occasionally default on their obligations. If this is the case, the remaining value of your investment can be lost. Bonds issued by the federal government, for the most part, are immune from default (if the government needed money it could just print more). Bonds issued by corporations are more likely to be defaulted on-companies often go bankrupt. Municipalities occasionally default as well, although it is much less common. The good news is that you are compensated for taking on the higher risks associated with corporate bonds and municipal bonds. The yield on corporate bonds is higher than that of municipal bonds, which is higher than that of treasury bonds. Moreover, there is a rating system that enables you to know the amount of risk each class of bond entails.

·         Call Risk: Some bonds can be called by the company that issued them. That means the bonds have to be redeemed by the bondholder, usually so that the issuer can issue new bonds at a lower interest rate. This forces you to reinvest the principal sooner than expected, usually at a lower interest rate. This subject will be further discussed in later sections.

·         Inflation Risk: With few exceptions, the interest rate on your bond is set when it is issued, as is the principal that will be returned at maturity. If there is significant inflation over the time you held the bond, the real value (what you can purchase with the income) of your investment will suffer.

      Investment in Bonds: India

In the Indian market, Banks are the largest investors in bonds. Apart from bank, mutual funds, foreign institutional investors, Provident funds also invest in bonds. In the year 2002, RBI categorized individuals as retail investors and allowed them to participate in the auction carried by RBI. The minimum bid has to be for an amount of Rs 10,000 and a single bid should not exceed Rs 1 Crore.

v Investments in Mutual Fund:

Mutual funds can be defined as the money-managing systems that are introduced to professionally invest money collected from the public (Investors) having a common financial goal. The col­lected money is invested in var­i­ous cap­i­tal mar­ket instru­ments like shares, deben­tures and other secu­ri­ties. The income earned through these invest­ments is shared with all the investors. It is con­sid­ered as the most suit­able invest­ment for the com­mon man as it offers both diver­sity and liq­uid­ity at a lower cost along with pro­fes­sional management. The Asset Management Companies (AMCs) manage different types of mutual fund schemes. The AMCs are supported by various financial institutions or companies.

Mutual Funds are similar to investing in the stock market. Mutual Fund companies invest in the stock market on behalf on willing investors. Although Mutual Funds are subject to market risks, the returns are weighty.

One should select mutual fund schemes based on all or some of the following criteria:

Long term and Short Term Performance
Consistency in Returns
Performance during bullish and bearish phases
Fund Managers performance with the fund's operations

A simple way to select a mutual fund scheme to invest in is to select a 5 star or 4 star rated fund from one of the following rating agencies: ICRA Ratings, Value Research Online, Moneycontrol

      Advan­tages of a mutual fund are as follows:

Mutual funds are preferred for their cost-effectiveness and easy investment process. By investing all the money in a mutual fund, investors can buy stocks or bonds at lower trading charges. This is indeed one of the main benefits, which is not available otherwise. You don't need to see which stock or bond would be better to buy. Another advantage is diversification. Diversification stands for diffusing money across various different categories of investments. There is every possibility that when one investment is down, the other can be up. In simple terms, this is helpful in reducing risks.

Transparency, flexibility, professional investment management, variety and liquidity are some of the other benefits of the mutual funds, which are not found in case of other investments to such an extent.

Risk versus Reward:

Volatility in the market activity can be referred to as the risk in the mutual fund investment. The sudden upward and downward sentiments of the markets and individual issues can be attributed to several key factors. These factors comprise:

• Inflation
• Interest rate changes
• General economic scenario

The aforementioned factors are the main cause of worry amongst the investors. Most of the investors fear that the value of the stock they have invested will fall considerably. However, it is here one can notice its reward angle. It is this element of volatility that can also bring them substantial long-term return in comparison to a savings account.

      Types of Mutual Fund Scheme:

There are many types of mutual fund schemes based on dif­fer­ent para­me­ters. Based on invest­ment objec­tive, there are 3 types of Mutual Fund schemes are – Growth Schemes, Balanced Schemes and Income Schemes.

1) Growth Schemes: invest in stocks where the com­pany itself and the indus­try in which it oper­ates are thought to have good long-term growth potential.

2) Bal­anced Schemes: invest in a com­bi­na­tion of both stocks and bonds.

3) Income Schemes: invest in gov­ern­ment bonds/debentures. It offers investors a reg­u­lar income usu­ally paid out in the form of monthly dividends.

The other Mutual fund types are: Open end funds, Equity mutual funds, Mid cap funds, Large cap funds, Exchange Traded Funds (ETFs), Load mutual funds and No-Load mutual funds, Value funds, International mutual funds, Money market funds, Sector mutual funds, Fund of funds (FoF), Index funds and Regional mutual funds etc.

      Basic ter­mi­nol­ogy of a Mutual Fund:

1) NAV (Net Asset Value): NAV stands for the latest market value of the holdings of a fund that brings down the fund's liabilities, which are generally indicated in terms of per share amount. On a daily basis, most of the funds' NAV is decided. This is determined after the trade closes on certain financial exchanges. The net asset value of the mutual funds is ascertained at the end of the trading day. An increase in NAV signifies rise in the holdings of the shareholder. The Fund Firm will then do the transaction on the shares along with the sales fees. While open-ended net asset value of the mutual funds is issued daily, the close-ended NAV of the mutual fund is released on a weekly basis.

2) Redemption Price: It is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity.

      Mutual Funds Invest­ment: India

Investment in mutual funds in India means pooling money in bonds, short-term money market, financial institutions, stocks and securities and dishing out returns as dividends. In India, Fund Managers manage the mutual funds. They are also referred to as portfolio managers. The mutual funds in India are regulated by the Securities Exchange Board of India.

     Top mutual funds in India

Here are some of the top mutual funds in India that are listed below:

• Reliance Mutual Fund
• The DSP ML Tiger Fund
• SBI Magnum Contra Fund
• HDFC Equity Fund
• Prudential ICICI Dynamic Fund
• SBI Mutual Fund

v  Systematic Investment Plan or SIP:

A systematic investment plan or SIP (as it is more commonly known) is a way to invest in mutual funds regularly. It is like your recurring deposit where you put in a small amount every month. It allows you to invest in a mutual fund by making smaller periodic investments (monthly or quarterly) in place of a heavy one-time investment i.e. SIP allows you to pay 10 periodic investments of Rs 500 each in place of a one-time investment of Rs 5,000 in an MF. Thus, you can invest in a mutual fund without altering your other financial liabilities. It is imperative to understand the concept of rupee cost averaging and the power of compounding to better appreciate the working of SIPs.

People like such a system because it helps them save regularly and build up an investment. Setting up an SIP is really easy, and all you need is an account with a stock broker.

SIP has brought mutual funds within the reach of an average person as it enables even those with tight budgets to invest Rs 500 or Rs 1,000 on a regular basis in place of making a heavy, one-time investment. While making small investments through SIP may not seem appealing at first, it enables investors to get into the habit of saving. And over the years, it can really add up and give you handsome returns. A monthly SIP of Rs 1000 at the rate of 9% would grow to Rs 6.69 lac in 10 years, Rs 17.83 lac in 30 years and Rs 44.20 lac in 40 years.

Systematic Investing in a Mutual Fund is the answer to preventing the pitfalls of equity investment and still enjoying the high returns. And it makes all the more sense today when the stock markets are booming.

Even for the cash-rich, SIPs reduces the chance of investing at the wrong time and losing their sleep over a wrong investment decision. However, the true benefit of an SIP is derived by investing at lower levels. Other benefits include:

1) Discipline:
The cardinal rule of building your corpus is to stay focused, invest regularly and maintain discipline in your investing pattern. A few hundred set aside every month will not affect your monthly disposable income. You will also find it easier to part with a few hundred every month, rather than set aside a large sum for investing in one shot.

2) Market timing becomes irrelevant:

One of the biggest difficulties in equity investing is WHEN to invest, apart from the other big question WHERE to invest. While, investing in a mutual fund solves the issue of 'where' to invest, SIP helps us to overcome the problem of 'when'. SIP is a disciplined investing irrespective of the state of the market. It thus makes the market timing totally irrelevant. And today when the markets are high, it may not be prudent to commit large sums at one go. With the next 2-3 years looking good from Indian Economy point of view, one can expect handsome returns thru' regular investing. 

3) Power of compounding:
Investment gurus always recommend that one must start investing early in life. One of the main reasons for doing that is the benefit of compounding. Let's explain this with an example. Person A started investing Rs 10,000 per year at the age of 30. Person B started investing the same amount every year at the age of 35. When they attained the age of 60 respectively, A had built a corpus of Rs 12.23 lac while person B's corpus was only Rs 7.89 lac. For this example, a rate of return of 8% compounded has been assumed. So the difference of Rs 50,000 in amount invested made a difference of more than Rs 4 lac. to their end-corpus. That difference is due to the effect of compounding. The longer the (compounding) period, the higher the returns.

Now, instead of investing Rs 10,000 each year, suppose A invested Rs 50,000 after every five years, starting at the age of 35. The total amount invested, thus remains the same -- Rs 3 lac. However, when he is 60, his corpus will be Rs 10.43 lac. Again, he loses the advantage of compounding in the early years.

4) Rupee cost averaging:
This is especially true for investments in equities. When you invest the same amount in a fund at regular intervals over time, you buy more units when the price is lower. Thus, you would reduce your average cost per share (or per unit) over time. This strategy is called 'rupee cost averaging'. With a sensible and long-term investment approach, rupee cost averaging can smoothen out the market's ups and downs and reduce the risks of investing in volatile markets.

People who invest through SIPs capture the lows as well as the highs of the market. In an SIP, your average cost of investing comes down since you will go through all phases of the market, bull or bear.

5) Does not strain our day-to-day finances:

Mutual Funds allow us to invest very small amounts (Rs 500 - Rs 1000) in SIP, as against larger one-time investment required, if we were to buy directly from the market. This makes investing easier as it does not strain our monthly finances. It, therefore, becomes an ideal investment option for a small-time investor, who would otherwise not be able to enjoy the benefits of investing in the equity market.

6) Reduces the average cost:

In SIP we are investing a fixed amount regularly. Therefore, we end up buying more number of units when the markets are down and NAV is low and less number of units when the markets are up and the NAV is high. This is called rupee-cost averaging. Generally, we would stay away from buying when the markets are down. We generally tend to invest when the markets are rising. SIP works as a good discipline as it forces us to buy even when the markets are low, which actually is the best time to buy. (Read more - Invest wisely and get rich with equity MFs)

7) Helps to fulfill our dreams:

The investments we make are ultimately for some objectives such as to buy a house, children's education, marriage etc. And many of them require a huge one-time investment. As it would usually not be possible raise such large amounts at short notice, we need to build the corpus over a longer period of time, through small but regular investments. This is what SIP is all about. Small investments, over a period of time, result in large wealth and help fulfill our dreams & aspirations.

9) Convenience:
This is a very convenient way of investing. You have to just submit cheques along with the filled up enrolment form. The mutual fund will deposit the cheques on the requested date and credit the units to one's account and will send the confirmation for the same.

8) It's an expert's field - Let's leave it to them:

Management of the fund by the professionals or experts is one of the key advantages of investing through a mutual fund. They regularly carry out extensive research on the company, the industry and the economy - thus ensuring informed investment. Secondly, they regularly track the market. Thus for many of us who do not have the desired expertise and are too busy with our vocation to devote sufficient time and effort to investing in equity, mutual funds offer an attractive alternative.

10) Other advantages:
· There are no entry or exit loads on SIP investments.
· Capital gains, wherever applicable, are taxed on a first-in, first-out basis.

     Non benefits of SIPs:

1. Tax planning: Yes, setting up a SIP in a Tax planning mutual fund will help you reduce taxes, but if you invest the same amount at one go in the same mutual fund – you will get the same tax benefit. Tax benefit is not something exclusive to a SIP.

2. SIP lead to building wealth: Good saving and investing habits are more likely to help you accumulate wealth in the long run, but there is no guarantee that you will end up doing so. Especially, if you invest in equity mutual funds.

It will not work in bullish markets or when market goes up over time.When market goes up and keeps growing over time , the units bought every time will be at high price then the previous one, which will ultimately bring the average cost up , compared to the lump sum investment at the start.

v Investments in Real Estate:

Real Estate refers to invest­ment in immov­able prop­er­ties which includes land, build­ings, flats etc. Invest­ing in real estate involves the pur­chase of real estate and sell­ing it for a profit. Basi­cally invest­ment in real estate involves a sub­stan­tial invest­ment and for a long period of time. Major­ity of the investors invest in real estate in the form of buy­ing a house. But real estate invest­ment is beyond this and the objec­tive behind the invest­ment is to make prof­its. Before mak­ing a real estate invest­ment, the investor should eval­u­ate the risk appetite and invest­ment amount.

The real estate developments in the country consist of the following:-

• Constructing houses
• Townships
• Residential complexes
• Office buildings
• Shopping malls
• IT parks

The different types of real estate investments are as follows:

1) Rental: This aim of this form of investment is to rent out property to a tenant and earn a continuous stream of rent from the tenant. The value of the property also increases over a period of time. The risk in this form of investment is the owner of the property has to find out a tenant and also need to pay for the maintenance expenses.

2) Trading: Basically traders in real estate in order to make a quick profit buy properties for a short tem (six months) and sell them at a profit. Traders look out for buying undervalued properties/very hot properties and sell them at a profit.

3) Long Term Investment:  There is a certain group of investors who invests in real estate basically plot of land from a long term perspective. The objective is over a period of time the value of the property will rise and the owner will make a profit by selling it. The biggest flaw in this investment is money is blocked for an indefinite period and the appreciation of the property value is unpredictable.

      Advantages of the Real Estate industry in India are as follows:

With a healthy growth rate of 30%, the commercial market in India portrays a truly ascending curve. More than 10% of India GDP and close to 8% of employment, retailing has enabled India to reach a comfortable position among the other progressive nations of the world. In fact, the retail industry in India is booming with a bang and has emerged to be a very promising sector in recent future.

One of the other advantages of the Real Estate industry in India is that nowadays, the real estate dealers are looking forward to influence the SEZs as well. As a matter of fact, since the year 2005, FDI in real estate sector in India has earned a promising amount of US$ 8 billion approximately.

Real Estate Investment in India is not only a bright prospect, but also, from a magnified dimension, it is a potential opportunity to optimize the benefits of the economic growth in India.

      Real Estate Investment: India

Real Estate Investment in India is one of most successful investment phenomenon in the last few decades. Real Estate industry in India has reached a culmination point ever since, the gates were opened to the foreign investors. It has huge prospects in sectors like commercial, housing, hospitality, retail, manufacturing, healthcare etc. Calculated realty demand for IT/ITES industry in 2010 is estimated at 150mn sq.ft. around the chief Indian cities. Termed as the "money making industry", realty sector of India promises annual profits of 30% to 100% through real estate investments. This is the reason why many foreign investors are investing huge amounts of money in this sector.

v Conclusion:

As almost everything here – the conclusion is for you to decide. This might work very well for one person, but may not work at all for another. Just keep all these factors in mind, while making a decision.