Investing in stocks: Know your investment options
What's the story
People's decision to invest in stock markets are largely affected by misconceptions about the stock market, a lack of adequate information, and a limited amount of funds. Yet, it's quite possible to invest in the stock market without taking an overbearing risk. That requires an understanding of investment options, and we'll be glad to walk you through that.
Mutual funds
Investing in mutual funds
Investment in mutual funds involves the least risk as funds are invested in stocks of different companies in various industries. Hence, if one sector/company underperforms, it's unlikely to have a major impact on the overall performance of the fund you've invested in. However, you should also know that mutual funds don't offer assured returns and it's advisable to do your homework before investing.
ULIPs
Investing in Unit Linked Investment Plans
When they were initially introduced, Unit Linked Investment Plans (ULIPs) were not favoured by the public due to the high charges imposed on them by distributors and insurance companies. However, since the Insurance Regulatory and Development Authority (IRDA) put a cap on the annual fees on ULIPs, they have grown in popularity. ULIPs can be divided into three categories - aggressive, balanced, and conservative.
ETFs
Investing in Exchange Traded Funds
Exchange Traded Funds (ETFs) are also like mutual funds - they pool money from different investors to buy a diverse set of stocks and/or bonds. However, ETFs aren't bought from a fund company but have to be purchased through brokerage. ETFs are also index funds which passively mimic the performance of particular indices like Sensex. ETFs have lower annual expenses compared to other funds.
NPS
Investing in the National Pension Scheme
The National Pension Scheme (NPS) is a voluntary retirement saving scheme started by the Indian government. It allows for investments in equities and requires a minimum contribution of Rs. 6,000 annually which can be paid in installments of Rs. 500. Under NPS you can invest in a mix of equities, fixed deposits, liquid funds, government funds, corporate bonds etc.