What are the investable assets?

Investment is the process of allocating your money to increase your wealth within a certain period. Investments can take various forms, such as life insurance plans, retirement plans, ULIPs,  mutual funds, and others. A common example of an investment is purchasing a financial asset with the expectation of earning income or profit from it in the future by selling it at a higher price. Investment means putting your money into an investment plan that can increase in value or generate  income. As responsibility grows, the need for investment will also increase in greater amounts.  

How investment work

An investment is an asset acquired with the intention of increasing its value over time. Investments can  be made for various purposes, such as fulfilling income shortfalls, saving for retirement, paying off debts,  providing education, or fulfilling other obligations like acquiring property.  

Investment can provide income in two ways. Firstly, if you invest in a saleable asset, you can earn profit.  Secondly, if you invest in a return-generating plan, you will earn revenue through interest accumulation. Therefore, considering investment as a process of  keeping your savings in assets or goods that will become more valuable over time or generate income is  advisable. 

Types of investment

To understand what investment entails, it’s important to first grasp your financial goals and then  determine where to invest based on those goals. Apart from investing in tangible assets like real estate  and jewelry, there are two main types of investments: equity and debt. Equity investments offer the  potential for higher returns but come with more risk. On the other hand, debt instruments provide safer  but lower returns. Furthermore, determining how to invest can be decided through understanding the  purpose of the investment.

1.Stock: 

It represents ownership in a company and is associated with earning dividends.  

2.Bonds: 

Investing in bonds means lending money to the government or another institution. In return, you’ll receive  regular interest payments and get back the principal amount at the end of the bond’s term.  

3.Mutual Funds: 

When you invest in mutual funds, money is pooled from various investors and managed by a professional  fund manager. Depending on your risk appetite, investment horizon, and expected returns, you can invest  in equity, debt, or hybrid mutual funds. Additionally, investing in ELSS (Equity-Linked Savings Scheme)  mutual funds qualifies for deduction under Section 80C. 

4.ULIP: 

ULIP, or Unit Linked Insurance Plan, is a combination of life insurance and investment. A portion of the  premium is invested in various funds, allowing the investor to earn market-linked returns. This plan offers  tax benefits up to Rs. 1.5 lakh under Section 80C. 

5.Public Provident Fund (PPF):  

For those seeking guaranteed returns over the long term, PPF is seen as one of the best options for  investment. It’s a government-supported program with minimal risk involved for the initial investment amount.  

To maximize tax benefits, explore investment options for tax savings and allocate funds accordingly.  When considering investment impact, also consider adding term plans and health insurance policies to  your portfolio to protect your family. 

6.Equities; 

It refers to stocks or shares representing ownership in a company. Investors buy equities with the  expectation of earning returns through dividends or capital gains as the company’s value increases.  They’re a common investment option for building wealth over the long term.

7.Real Estate; 

Real estate refers to property consisting of land and the buildings on it, along with natural resources such  as crops, minerals, or water. It’s a tangible asset class that investors often buy for various purposes,  including residential, commercial, or industrial use, as well as for investment or development purposes.  Real estate can provide rental income, capital appreciation, and portfolio diversification for investors. 

The Purpose of Investment

Before investing, it’s important to understand why you are investing. While everyone’s individual  objectives may vary, common overall goals of financial investment include wealth creation, saving for  retirement, or building an economic safety net.  

Here are some reasons why you might be investing: 

1.To Ensure Financial Security:  

A primary goal when investing is to ensure that your money doesn’t depreciate over time. Instruments like  fixed deposits, government bonds, and savings accounts are suitable for this purpose. While they may not  offer the highest returns, they guarantee that your principal remains secure. 

2.To Accumulate Wealth:

Investing money with the goal of building substantial capital over time is crucial for people to plan for  their financial future. To grow your wealth, you need to consider your investment objectives and options  that can provide high returns. Real estate, mutual funds, commodities, and stocks are some of the best  investments for growth, albeit with some level of risk involved.

3.To Earn Regular Returns:  

Investment income can be a reliable source of earnings. Examples include stable deposits and stocks of  companies that regularly distribute dividends. These investments can help cover short-term daily  expenses as well as provide supplementary income during working years. 

4.To Reduce Tax Liability: 

Besides wealth growth or preservation, investors may have other reasons for investing. The Income Tax  Act, 1961, offers tax deductions to investors in alternatives like Unit Linked Insurance Plans (ULIPs),  Public Provident Fund (PPF), and Equity Linked Savings Schemes (ELSS). Such investments may exempt a  portion of one’s total income, resulting in lower taxable income and reduced tax liability. 

5.To Prepare for Retirement:  

Preparation for retirement is essential. Having sufficient retirement savings in place for your later years is  crucial for ensuring financial security in your post-work life, as you won’t be able to rely on a regular  income. Investing your income wisely can help grow your retirement savings and provide you with a  comfortable retirement. 

Investment Categories

the investable assets

Ownership Investment: 

Ownership investments involve acquiring assets such as stocks, real estate, bonds, and business  equities. Examples of this type of investment include stocks, real estate, bonds, and business equities. 

Lending Investments: 

Savings accounts, corporate bonds, and government bonds constitute all types of lending investments.  When you invest in these investable assets, you are essentially acting like a bank. You are essentially lending  money to a bank, which is then used to create loan portfolios for its customers. Lending investments  provide a passive income stream, which is a fantastic way to earn. 

Cash Equivalents: 

These are investments that are highly liquid and can be quickly exchanged for cash. For example, money  market securities are ideal examples of cash equivalents. Cash equivalents generally provide low returns, 

but they also come with minimal risk. 

Tax-saving options with long-term investments:

Public Provident Fund (PPF): 

Investing in PPF allows you to earn tax-exempt returns while building your savings over the long term.

Unit Linked Insurance Plan (ULIP): 

ULIPs provide the dual benefit of insurance coverage and investment growth. The returns earned are tax free, making it an attractive option for long-term tax planning. 

Equity Mutual Funds, Gold ETFs, and Debt Mutual Funds:  

By holding these investments for a sufficient period, you can benefit from indexation on capital gains,  reducing the tax burden on your investment returns.  

Why is investment important? 

You might be wondering why understanding the concept of investment is crucial when you can simply  save more of your income. Setting aside a portion of your earnings each month can create a reserve fund,  but it may not be enough to cover your family in a medical emergency. Knowing ‘what is  investable assets’ will  guide you on how to create wealth and help you achieve your life goals. 

Conclusion: 

Now that you understand the meaning of the investable assets and various plans and benefits, start investing  promptly for the highest returns. Choose the right plans, inspect your portfolio, and witness the growth of  your finances. However, it’s essential to note that market-linked investment plans carry the risk of loss  due to market volatility. Therefore, consulting with a financial advisor before investing is wise.

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