Investment Alternatives Available for Investors

This blog is related with the investment alternatives present in market for investors. As we all know there are numerous investment avenues from which an investor can make a choice but very few knows that there choice should be based on their objective, risk appetite, time horizon and how much return they are expecting. As we all know, different investment alternatives have different risk and return trade off. So, it depends upon an investor how he/she perceive and think about his/her investments. There are number of investment alternatives available for investors which are divided under three heads:- Short-term investments, Long- term investments and other type investment. 

Short-term investments include: Saving bank account, Money-market Instruments (Money-Market funds, treasury bills, commercial papers and certificates of deposits), bank fixed deposits.

Long-term investments include: Post Office savings, Public Provident Fund, Company fixed deposits, Bonds and debentures, Mutual Funds, Life Insurance Policies, Equity shares, Real estate.

Other Investments include: Commodity Market, Forward Market, Future Market, Option Market and currency market.

Today I will explain only short-term investment options and other two options later on in my future write- ups.

Saving Bank Account- It is a short term investment option and usually the first banking product which people use. It offers a low interest rate of 3.5%p.a but its better option than safe deposits lockers. It provides best option if you are looking for protecting your money. Best example check out your own bank account.

Bank Fixed Deposits- Bank Fixed deposits are best options for those investors which have low risk appetite. This investment product is normally available with every bank with minimum investment period of 30days. The best investment period for Bank FDs is 6 to 12 months as interest rate in less than 6 month period is likely to be lower than money-market instruments returns. It is very important for an investor in this investment instrument to plan your investment period because early withdrawal of money carries a penalty.

Money-Market Instruments- Money-Market instruments are those instruments which have a maturity of less than one year at the time of issue. Money-Market instruments are Money-Market funds, treasury bills, commercial papers and certificates of deposits. Money- Market instruments primary objective is to protect your money and then aimed at maximizing returns. Money market instruments usually yield lower return than bank fixed deposits.

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• Money-Market funds are also known as liquid funds. It results better return and better liquidity than saving bank account. Money- Market funds primary objective is to protect your money and then aimed at maximizing returns. Money market funds usually yield lower return than bank fixed deposits. With the flexibility to issue cheques from a money market fund account now available.

• Treasury bills- These are short-term obligations issued by the government. At present, the Government of India (GOI) issues 4 types of T-Bills i.e., 14 day, 91 day, 182 day and 364 day. The T-Bills are issued for a minimum amount of Rs. 25,000/- and in multiples of Rs. 25,000/-. T-Bills are issued at a discount and redeemed at par. 

• Commerical Paper- These are short-term unsecured promissory notes issued by a company to raise short-term cash. They mature in no more than 270 days. Only the largest and creditworthy companies issue these commercial papers. CPs as a source of short-term finance is used by companies as an alternative to bank finance for working capital. Generally, companies prefer to raise funds through this route when the interest rate on working capital charged by banks is higher than the rate at which funds can be raised through CP.

• Certificates of Deposits- These are bank-issued time deposit that specifies an interest rate and maturity date, and is negotiable (saleable on a secondary market). CDs are issued at a discount to face value. The discount rate is freely determined by the issuing bank considering the prevailing call money rates, treasury bills rate, maturity of the CD and its relation with the customer, etc. The minimum size for the issue of CDs is Rs. 5 lakh (face value) and thereafter in multiples of Rs. 1 lakh. 

Will update you all on long-term investment and other type of investment alternative in next blog. I hope next time you’ll think twice before investing for short-term investment.