Welcome back friends. Last week we discussed some of the conventional investment instruments which have been the darling of investors as they offer security and comfort. And now its time to explore other modern methods .
Read the first part here.
Whether you are new to investing or a seasoned professional , there's always more to learn. But with so many options how do you know where to focus your time hard earned money. Without further delay, here are the smart ways for you to grow your money. .............................................................................................................
1. Real Estate “Buy land, they are not making it anymore.” - Mark Twain He was absolutely right about that. Real estate is one investment that has created most millionaires in the world today. In Indian context and the from the perspective of our readers, we surely understand that real estate prices have skyrocketed and continue to be at an all time high. The ownership of the house brings with it an unmatched sense of security. Note: Understand that the house you buy is not an investment! Its for your personal use. Investment in real estate is additional property besides your house! An alternative to investing in real estate is investing in companies that invest in real estate as stocks or investing in an instrument known as REITs. What are REITs ? REITs are companies that operate in the business of leasing or renting high value real estate properties. Our offices, malls, hospitals, hotels etc. are some of the kinds of properties that these companies operate in to generate income. For instance, they lease properties, collect rent and grow money. The rent thus collected is later distributed among shareholders as income and dividends. The investors can buy/sell REITs as they do with shares . Here's how it works.
How to buy and sell REITs
You can invest in a publicly traded REIT, listed on stock exchange, by purchasing shares through a broker. You can also purchase shares in a REIT mutual fund or REIT exchange-traded fund.
Advantages of investing in REITs
For the purpose of our users there are two REITS listed in India as of today:
Our 2 cents: Before you invest in a REIT, check the dividend pay-out percentage and also the occupancy percentage for their underlying properties.
2. Mutual Funds
“Mutual Fund Investment are subject to market risk, please read the offer document carefully before investing.”
Before we discuss about mutual funds, we will bust a long prevailing myth.
SIP is not Mutual funds !
Whenever an investor commits to an investment scheme at regular intervals it is known as a SIP (Systematic Investment Plan). Even the Recurring Deposit is a SIP.
What are mutual funds
Essentially, the money pooled in by a large number of people (or investors) is what makes up a Mutual Fund. This gargantuan amount is then invested across different instruments. such as stocks, bonds, and short-term debt etc.
They are one of the best methods of investment in today’s world.
There are a variety of MFs available for you to invest in. Let us simplify the classification for you with a simple illustration:
Each class of mutual fund serves a specific purpose to an investor based on its risk, return expectation, tax benefit and time duration.
MFs have proven to be one of the most popular and effective methods of wealth creation. Now you know the options and the advantages .
Bottom line :Mutual fund sahi hai !
When we talk about investments, it is somehow always correlated to equities. It’s the buzz word, right! And for genuine reasons. Equity investments have been and may continue to be one of the most approachable and lucrative investments known to us (dropping cryptocurrencies aside for the moment).
Investing in equity shares helps to beat the inflationary pressure by delivering a higher rate of return as compared to other havens.
To put all of this into perspective;
1 lakh invested in Kotak Mahindra bank in 1985 was worth 1400 Crores in 2017. That’s quite a good return and obviously on the extreme side of the pendulum.
Please note we are not promoting equity investments given the risks they carry. Instead , just reflecting on the sheer power of businesses to create wealth with equities. Having said that, there are and will always be myriad of avenues for people to create tremendous wealth from equities.
Though we cant predict the trajectory of these businesses , we certainly can help you identify better business options to invest in. Alas, all good things take time and you'll need to wait for our next newsletter to explore these ideas. Until next Thursday!
Reiterating the old adage: Patience is a virtue. Absolutely!