Investment options are plenty nowadays. There are numerous options to choose from, according to your investment horizon.
Multiple things play a factor when choosing an investment option.
To begin with, you should have a good idea about the goal of the investment. This could help tremendously in choosing the right investment option. For instance, if your goal is creating a retirement fund, you could choose a long-term investment option.
Secondly, you should have clear about the risk you can afford to take. Some investors may have a higher risk appetite and some low, but choosing an option according to your risk appetite has an important role in the success of the investment.
Lastly, there are two ways to invest. Either you can invest every month to create a corpus or invest a corpus that you already have. But how do you choose an investment option when you want to do the latter? Let us examine some investment options to put your money into for five years.
There could be two main goals when you have a lump sum to invest. You will either be trying to protect your corpus and park it safely for decent returns or invest to accelerate the growth of your corpus. You should ideally choose an investment option that matches your goal here.
Now, since you have a goal in mind, let us look at the options.
Stock market investments
Tock investments are said to have the most potential for growth. But at the same time, they can be volatile and hence, tend to have the highest risk element. Because of this, stock investments work best if you have a larger risk appetite.
But having said that, you can invest for growth as well as safety in stocks as well. For instance, if you invest in growth stocks, you have a higher probability of growing your investments, given a higher risk element. At the same time, if you are trying to park your money safely, you may choose to invest in large-cap stocks & SIP. These companies have stable growth and good fundamentals. Hence, the volatility may be lower. At the same time, they still carry a higher risk than conservative options.
You will also have to keep a regular eye on your investment if you choose stock investments. This is because stocks can be highly volatile.
Bonds are a form of debt instrument. Companies and governments use bonds to raise capital for their operations.
There are two factors to keep in mind while investing in bonds – the face value and coupon rate. Face value is the amount you invest. Bonds have a maturity period. In most cases, you will receive the face value back at the end of the maturity period.
The coupon rate is the interest that the bond gives. You will continue to receive interest payments till the end of the maturity period.
Since the interest rates are fixed, it comes with lesser risk. The return is almost guaranteed. But at the same time, their return potential may be lower than that of stock investments. Hence, bonds become a good investment option for parking your money with decent returns.
Mutual fund investments
Mutual funds are designed to make investing easier. Instead of you picking the securities, the fund house creates a portfolio to invest in according to your investment taste. There are options for both growth and safe parking in mutual funds.
The choice of which investment option works for you depends largely on your goals. Hence, ensure you have a clear idea about your goals and risk appetite before you choose an option.