This article was first published on Outlook Money at https://www.outlookindia.com/outlookmoney/opinion/basics-of-investment-in-building-a-portfolio-part-1-3039
Indians are looking out for different asset classes for their investments. Previously, all the investments were in terms of land or gold. Even though it has been over 40 years since the first public issue in India, the majority of the investments were in the form of physical assets. Lately, the investments in different asset classes have picked up and new asset classes are coming into the picture.
Types of asset classes
Following are the different asset classes available to invest in the market right now.
Investing in equity is buying shares of the company and becoming a part owner of it. Equity investments have taken multiple forms. One can invest directly in equity by buying shares of a firm or can invest in equity through equity mutual funds. Investing for a long-term is recommended for equity investments.
Debt or popularly known as fixed income is one of the most trusted forms of investments. One can earn steady returns from their investment in debt. Invest in fixed income securities directly by buying bonds, investing in debt funds or placing bank deposits. One can invest for a period of 1-5 years in fixed income securities.
Cash and cash equivalents
Holding money in cash or at bank is one of the most popular form of investment. It is most liquid form of investment. Returns from this form of investment is very negligible.
Real estate has been extremely popular as an asset class in India. Up until a decade ago, real estate investments have been profitable. In the last 5-6 years, it has lost its sheen due to flattish prices.
Commodities like gold, silver, oil, gas and other natural resources are popular commodities used for investment. Gold as an asset class has been popular in India. However, people are moving towards financial products. Investing in commodities does provide diversification and hedge against inflation. Commodity investing is highly volatile Commodities have a low or negative correlation to the stock markets thus diversifying an equity-heavy portfolio.
In alternative investing the investing is restricted to high net worth individuals. Private equity, venture capital and hedge funds are usually the different types of alternative investing. They are highly risky but can give exceptionally high returns.
This generally constitutes other types of investing like physical assets like art and cryptocurrency. Physical assets include paintings, precious stones or vintage cars Cryptocurrency like Bitcoin is one of the new investment products in the market albeit facing heavy regulation risk throughout the world.
Investing across asset classes can help to reduce risk in a portfolio. Diversification is the key to a robust investment portfolio.