Investing in well-known financial products falls into the category of Traditional Investments. These include bonds, shares, real estate etc. These are categories which are quite popular among investors as active investment strategies to make your money grow. Following are the investment products that fall under the category of traditional investment.
A Bond can be understood as an IOU which is issued by an issuer (borrower) and to a lender. Generally, bonds are instruments used by public and private sector enterprises to raise huge sums of money which any bank is incapable of lending. These bonds are then issued in the public market by the borrowing entity and are bought by lenders for specific amounts of money. Thousands of lenders then come together to lend the required amount and the borrowing organization is able to raise capital for its operational or growth purposes.
However, since money is being lent to the issuer of bonds, there is also an interest component involved that is paid back to the investor in turn for his/her money. This interest is paid at a predetermined rate and for a specific period of time. Bonds fall under the category of fixed income securities since the interest on these can be exactly calculated for the time for which the bond is held. Bonds fall under the debt category and are therefore, comparatively safer financial instruments to invest in. However, with all financial tools risk is inversely proportional to returns and as such the low-risk attribute of this tool makes it a low return instrument as well.
Stocks or equity are shares that are issued by companies and are bought by the general public. This offers an avenue to companies to raise funds. Stocks entitle a customer ownership of a company. Shares, stocks and equity all imply the same thing. Shares are one of the most popular investment avenues in the world. This is because the returns offered by stocks is generally higher than any other financial instrument. However, to balance out the high return associated with stocks, the risk associated with these products is also quite high.
Any business may issues different types of shares based on the financial urgency and need. In exchange for the money, shareholders are issued Stock certificates.
Stocks are mostly divided into two basic types, common stocks and preferred stocks.
Small Saving Schemes
Small savings is another popular savings tool in the Indian financial market. The name itself suggests that these tools are meant for saving money in small amounts. The idea behind this financial tool is to enable the habit of saving in people from almost all economic sections. Some of the most common small savings tools are Sukanya Samriddhi Scheme, EPF (Employees Provident Fund), NPS (National Pension Scheme, Kisan Vikas Patra, Personal Provident Fund (PPF) etc. Almost all small savings schemes are initiated and facilitated by the government so as to enhance the spread and penetration of savings schemes in the country. Let us look into some of the most prominent schemes out of these.
As the name itself indicates, fixed deposits are financial instruments that are one of the oldest and safest ways to save money. These are not necessarily active investment tools, but are rather a passive way to save and earn returns. A fixed amount of money is kept aside with a financial institution for a fixed number of days or months or years. In turn, interest is earned on this money. The rate of interest differs with the deposit tenure and also with the banking entity.
Similar to fixed deposit is the concept of recurring deposit. However, the only point of difference in the two investment tools is that while a lump-sum amount needs to be fixed in case of fixed deposit, a smaller amount needs to be deposited at regular intervals in case of a recurring deposit. Hence, customers who do not have a large chunk of money to fix in a single go can opt for a recurring deposit wherein money is usually deposited monthly for a specific deposit tenure. The rate of interest earned on recurring deposit is similar and comparable to that earned on fixed deposit.
Property rates are soaring with every passing day which has made real estate a hot investment avenue for investors. Buying, selling and leasing of property offers substantial returns to investors. Appreciation of property makes real estate a good investment tool. With urbanization gaining ground rapidly, real estate prices in certain major cities like Mumbai, Bangalore, New Delhi, are skyrocketing. This has made these places hot hubs for real estate investors. Most investors take loans from banks to purchase real estate and then lease out or sell the same property to enjoy returns offered due to appreciation in price of the property.
Traditional plans, also called Conventional Insurance Plans are plans where money is invested as per the guidelines laid down in the Insurance Act. The whereabouts of the invested premium is not known to the policyholder. The policyholder is simply promised certain benefits payable on death, maturity or as money back. Traditional Investment Plans have some of the basic features which are mentioned below:
These plans are issued for a longer term perspective and money cannot be withdrawn from the plans.
In case of stopping the premium payment, the plan becomes paid-up if at least three full years’ premiums have been paid. A paid-up plan has a reduced Sum Assured and the policyholder has a choice to either run the plan at the reduced coverage or surrender the plan.
The plans may be offered as participating or non-participating plans. Participating plans are entitled to participate in the company’s profits and earn bonuses which are not true for non-participating plans.
The plans may be issued either as Endowment Plans or Money Back Plans.
“In today’s uncertain market, safety of capital and a steady corpus build-up have attracted people to this product (Traditional Insurance plans). A good interest rate scenario also makes a traditional plan an attractive option.