Types of investment • All business entities need funds to finance their day to day operation. There are two ways of raising funds for the business i.e. in the form of equity which mean the owned capital of the company or debt which represents the borrowed capital of the company. When funds are raised as equity, the company approaches various individuals to sell its shares at a fixed price. When this offering is done by the company for the first time, it is known as IPO or initial public offering. • IPO • Initial Public Offering, shortly known as IPO is the first public offering of equity shares of a company going to be listed on the stock exchange and publicly traded. It is the main source of acquiring money from the general public to finance its projects and the company allots shares to the investors in return. It is the turning point in the lifecycle of the company; that transforms from a small closely held company, which seek to expand their business or large privately owned firms to a publicly listed one. • Certain eligibility conditions are required to be fulfilled by the company so as to make an IPO. Guidelines specified by the Securities and Exchange Board of India (SEBI) and Company Act need to be complied by the promoters of the enterprise. • Definition of FPO • FPO, an acronym for Follow-on Public Offering, as the name suggests it is the public issue of shares to investors at large, by a publicly listed company. The process is after an IPO; wherein the company goes for a further issue of shares to the general public with a view to diversifying their equity base. The shares are offered for sale by the company through an offer document called prospectus. • Since bonds and debentures carry a fixed rate of interest ,their future benefits are known in advance, therefore they relatively lower risk than equity shares. Some bonds also offer tax exemption upto certain amount of investment depending upon notification by the government like – NABARD, NHAI Etc. • Deposit related investment: there are various types of deposit options available to investors like • Fixed deposits • Recurring deposits • Special term deposit schemes • Government Schemes : • National Savings Certificate (NSC) is a tax saving investment that can be purchased from any post office by an Indian Resident. Being a fixed return and low risk Government of India-backed investment, NSC is usually preferred by risk-averse investors or those seeking to diversify their portfolio through fixed return instrument. • You can buy it from the nearest post office in your name, for a minor or with another adult as a joint account. NSC comes with a fixed maturity period of five years. There is no maximum limit on the purchase of NSCs, but only investments of up to Rs.1.5 lakh can earn you a tax break under Section 80C of the Income Tax Act. The certificates earn a fixed interest, which is currently at a rate of 6.8% per annum. The interest rate is revised on a regular basis by the government. • PPF or Public Provident Fund is one of the most popular saving schemes among Indian households. Since it’s managed by the Central Government, the money in the PPF account and the returns it generates are guaranteed. • PPF, along with other small saving schemes was launched by the Government to benefit small savers. With a minimum investment of only Rs 500 per financial year, PPF is a clear choice for those looking for safe and guaranteed returns. • PPF also offers the best tax benefits as it falls under the Exempt-Exempt-Exempt (EEE) category. This means that first, the money invested in PPF in a financial year gets exempted from an individual’s taxable income (Under Section 80C) for that year. Also, the interest earned on PPF deposits along with the accumulated amount doesn’t have any tax liability. • The interest rate for PPF is set and paid by the government for every quarter. PPF interest rate for the first quarter of the year 2021-22 i.e. from 1st July to 30th September 2021 has been fixed at 7.1%. • Post Office Investments include a number of saving schemes that provide a high rate of interest as well as tax benefits and most importantly, carry the sovereign guarantee of Indian Government. Read on to know about various Post office savings schemes along with the interest rates, key features and benefits, tenure of deposit, etc. • All the post office investment schemes are tax-exempt under Section 80C, i.e. tax exemption up to Rs. 1,50,000 is allowed. Some small saving schemes offered by Post Office are Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), National Savings Certificate (NSC), Post Office Time Deposit for a 5 Year Term, and Senior Citizen Savings Scheme (SCSS). • Infrastructure Bonds • Bonds are good instruments to borrow capital and deposits from the public. The government of the country requires a huge sums to be invested in infrastructure activities for expansion and growth. When bonds are issued for investments in such infrastructure projects in a country, they are termed as Infrastructure bonds. Such bonds are either issued by • • • • Government Infrastructure companies as authorized by Government Non-Banking Financial Companies (NBFC) In other words, bonds issued by the above to finance infrastructure projects are infrastructure bonds. • Mutual Fund • A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. • Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds, and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund—derived by the aggregating performance of the underlying investments. • Equity Linked Savings Scheme (ELSS) is a kind of mutual fund scheme that predominantly invests in equity and equity related instruments to generate high returns. • What makes ELSS different from other equity mutual fund schemes is that investment upto ₹1.5 lakh in ELSS is eligible for deduction from taxable income in a financial year. The scheme comes with a statutory lock-in period of 3 years for each SIP. It is the only mutual fund scheme that qualifies for tax deduction under Section 80(C) of the IT Act. • ULIP:A unit linked insurance plan (ULIP) is a multi-faceted product that offers both insurance coverage and investment exposure in equities or bonds. This product requires policyholders to make regular premium payments. Part of the premiums goes toward insurance coverage, while the remaining portion is pooled with assets from other policyholders and invested in either equities, bonds, or a combination of both. • Unit Linked Insurance Plans (ULIPs) • A unit linked insurance plan can be used for various purposes, including providing life insurance, building wealth, generating retirement income, and paying for the educations of children and grandchildren. In many cases, an investor opens a ULIP to provide benefits to their descendants. With a life insurance ULIP, the beneficiaries would receive payments following the owner’s death. • A unit linked insurance plan’s investment options are structured much like mutual funds, in that they pool investments with those from other investors. As such, a ULIP's assets are managed with an eye toward accomplishing a specified investment objective. Investors can buy shares in a single strategy or diversify their investments across multiple marketlinked ULIP funds. • An exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same way a regular stock can. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. • ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. An exchange traded fund is a marketable security, meaning it has an associated price that allows it to be easily bought and sold. • An ETF is called an exchange traded fund because it's traded on an exchange just like stocks are. The price of an ETF’s shares will change throughout the trading day as the shares are bought and sold on the market. This is unlike mutual funds, which are not traded on an exchange, and trade only once per day after the markets close. Additionally, ETFs tend to be more cost-effective and more liquid when compared to mutual funds. • There are various types of ETFs available to investors that can be used for income generation, speculation, price increases, and to hedge or partly offset risk in an investor's portfolio. • BOND ETF,CURRENCY ETF, Stock ETF,Commodity ETF • Derivatives are financial contracts, set between two or more parties, that derive their value from an underlying asset, group of assets, or benchmark. • A derivative can trade on an exchange or over-the-counter. • Prices for derivatives derive from fluctuations in the underlying asset. • Derivatives are usually leveraged instruments, which increases their potential risks and rewards. • Common derivatives include futures contracts, forwards, options, and swaps. • Collective investment scheme if briefly defined it means an investment scheme where investors come together and pool their money in order to invest their whole collection in a particular asset. Therefore, it is the scheme in which the returns and profits would be shared and used by the investors as per their agreements which are finalized by themselves. However, the Securities Exchange Board of India regulates it under the SEBI (Collective Investment) Scheme, 1999. This scheme also provides an exemption from Collective Investment Scheme registration. • A cis has to file an offer document with SEBI and obtain a credit rating before it can actually raise funds from investors units issued by CIS are compulsory listed on stock exchanges • A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments—without having to buy, manage, or finance any properties themselves. • Properties in a REIT portfolio may include apartment complexes, data centers, healthcare facilities, hotels, infrastructure—in the form of fiber cables, cell towers, and energy pipelines—office buildings, retail centers, self-storage, timberland, and warehouses. • In general, REITs specialize in a specific real estate sector. However, diversified and specialty REITs may hold different types of properties in their portfolios, such as a REIT that consists of both office and retail properties. • Many REITs are publicly traded on major securities exchanges, and investors can buy and sell them like stocks throughout the trading session. These REITs typically trade under substantial volume and are considered very liquid instruments.
