Many find investments to be a risky deal not because investments of any kind require fair amount of speculative measures for comparatively larger returns, but because they lack the knowledge about what to invest in and when.
Investments, irrespective of financial class of a human are mainly divided into three categories, which are
1) Short Term Investments
2) Middle Term Investments
3) Long Term Investments
Short Term Investments
Short Term investments are those kinds of investments, which are made for a very short period; in a financial year such investments can be made for a day to eleven months of that financial year.
The major financial investment tools for short-term investments are
1) Stock market
2) Derivatives market
3) Commodity market
4) Currency market
5) Bond Market
6) Bullion Trading
7) Short term mutual funds investments
8) Systematic investment plans
9) Short term Deposits with banks
10) Recurring deposit schemes
11) Institutional deposit schemes
12) Money landing
One can investment in the above for short term from one day to less than an year of any particular fiscal year, however it is not a mandatory condition that one cannot invest for longer period in these tools. Majority of the short-term investment tools are speculative and hence yield high but may result in a loss as well if not invested properly.
Middle Term Investments
Middle Term Investments are made for a period of more than one year but unto three years. These investments are generally made for saving taxes and the yield on such investments is usually guaranteed. These investments are not as risky as many of short-term investments are. The majority of middle-term financial investment tools are different schemes floated for infrastructure development by institutions and governments under strict regulatory guidelines of government or regulatory authority that protects the interest of investor.
Below is the list of financial investment tools for middle term investment.
1) Tax exempted Government bonds or bond funds or tax saving investment schemes floated by Governing body or local government like municipal tax exempted funds
2) Corporate Bonds
3) Unit Investment trusts
4) Market Linked Tax saving Insurance plans
5) Tax saving mutual fund schemes
6) Treasury and agency instruments or Government securities (GSECs)
7) Bank Deposits
8) Investment in stocks (Debentures)
Middle-term investments tools unlike many of short-term investment tools are much safe and yield considerable profit. These investments can be called as risk free investments and are least speculative, seldom there is any chance of loss in these investment tools and most of them are highly secured investments.
Long Term Investments
Long Term Investments are those, which are made for a period of more than three years, and they are planned till retired age as well. Taking capital gains and risk cover factors into consideration, which provide solid foundation of financial self-dependency in retired age and platform for heirs, makes these investments. Apart from low tax on capital gains long term investments also have other tax benefits.
Long-term investment tools are
1) Real Estate Investments
2) Annuities
3) Life Insurance
4) Long term deposits with government bodies
5) Long term deposits in bonds
6) Capital investments in corporate sector or in any secured business in form of asset
Long-term investment tools are common for everybody irrespective of financial class however; investments and return are subject to one’s financial capacity.
Financial planning plays a vital role in one’s life as it gives clear picture of one’s position and the strategic direction in which one is going ahead and it is the only mode to prepare oneself from those events which will inevitably occur in ones life irrespective of whether one anticipate with them or not.
Intelligent investors realize the importance of financial planning first and begin to work on savings before investing which enable them to generate surplus cash and start planning strategically.
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