What is an investment?
Investment is done with the purpose of generating income and increasing value overtime. It involves allocation of funds to an asset or any financial instrument with the goal of generating income in the long run. An investor can have various investment purposes like achieving set financial goals, funding retirement, generating wealth, preserving capital and so on.
The future being uncertain, investment also carries a level of uncertainty and risk. High return investments could also include potential loss of capital. Many investment assets are subjected to market volatility. They depend on industry performance and economic trends. Investment can be classified according to their tenure (short term, mid term, long term), risk (high risk, low risk).
As we proceed further, we have a safe and high return investment plan for you.
High risk investments (not recommended for beginners)
Cryptocurrency– Cryptocurrency is a digital form of currency which operates on blockchain technology. Cryptocurrencies can be traded through a cryptocurrency exchange platform. They are highly volatile in nature
IPO– IPOs are when the stocks of a company are available for sale to the public. They are done by companies to obtain capital by offering shares through the market.
Venture capital- It is a form of private equity financing that involves investing in startups or high growth companies. The risk factor here is that a startup can fail even if the product is desirable due to reasons like poor management.
Investing in high risk assets are suitable for aggressive investors who have a clear understanding of the market and risk factors. They can evaluate entry and exit points and have high-risk tolerance.
Investment for beginners
For beginners, it is advisable to go in for investments that offer stable returns. Some of them are fixed deposits, savings accounts, short term funds, Public Provident funds (PPF). They provide stable returns of 3% to 8%. For a beginner in investing, there are new investment platforms that provide high returns and are safer such as Peer to Peer lending (P2P lending). P2P lending platforms provide 10% to 14% returns. In addition to good returns, it offers hassle free investment. The investor does not have to follow up with the registered platform. The investor gets the estimated returns (10% to 14%) directly in his account.
What is P2P lending
Peer to Peer Lending, also known as P2P Lending eliminates the need for external agents, such as banks or financial organizations since it directly connects the investors and the borrowers. The process takes place through a digital platform. P2P lending platforms act as an intermediary between borrowers and investors, facilitating the loan process and managing the repayment process. P2P lending offers a way for individuals to earn higher returns on their investments compared to traditional investment options.
While there are many P2P platforms in India, the most recommended is LenDenClub which is India’s largest P2P lending platform.
Established in the year 2015, LenDenClub is an RBI regulated platform. An investor can invest a minimum amount of ₹10,000 and the maximum limit is ₹50 lakhs. The p2p investment tenure is 1 year to 5 years and the rate of return is 10% to 12%. The investment product of LenDenClub is FMPP and FMPP Investors have earned returns up to 12% p.a. since launch.
LenDenClub uses hyper diversification to give high returns to investors . Hyper diversification helps to mitigate risk by allocating funds to borrowers as low as INR 1. In that way the investors can lend small amounts to multiple borrowers.
To know more about investments refer to Investment plans with high returns in India
Here are some investment some tips for beginners
- Set clear investment goals– An investment without clear strategy will not provide desired results. You should have an idea of your investment goals, investment objectives (long term growth of your investment amount, income generation or capital preservation), risk taking capability, investment tenure (short term, mid-term or long term) to make a sound investment decision.
- Conduct thorough research– It is important to study and research the investment asset before investing. It will help to analyze potential risk and returns. Market trends, historical performance, future scope must be taken into consideration before deciding to invest. Investment decisions should be data driven and should not be made by intuition or guesswork.
- Start investing early– When investments are started at an early age, it gives ample time to grow your wealth. Even with a small investment amount, with the power of compounding one can amass a huge corpus. Well if you haven’t started investing yet, start now! Start small, start smart and learn as you invest.
- Diversify your portfolio- It is an age old saying ‘do not put all your eggs in one basket’ and here it implies that before investing the investor should study different asset classes such as stocks, bonds, real estate and make a blend of different investments in a single portfolio. The motive behind diversification is that a variety of investments will yield higher returns since if one asset class fails to perform well the risk would be mitigated by the higher return rate from other assets. Diversification helps in minimizing risk that may arise in any asset class.
- Risk vs Reward– Investments that provide high returns usually carry high risk.On the contrary, investment providing small returns carry minimal risk. There are 2 factors to consider while evaluating risk and reward. First is the ‘time horizon of the investment’ and second is the ‘ ‘bankroll’ which refers to the amount of money that an investor can afford to lose. It is important to assess risk tolerance and consider the trade-off for each investment before making any investment decision.
- Regular tracking– It becomes important to regularly review your portfolio and make adjustments based on market conditions. A few ways to track your investment is using various investment apps like Money Control, ET Money and others. An investor can also keep a track using Spreadsheets. Adjustments should be made in order to optimize portfolio’s performance.