What is Investment? Top Investment Options for 2019

Investments can be classified into these basic categories: investments you own, lending investments and the highly liquid cash equivalents.

Ownership investment: When you invest in an ownership investment, it means that you own that asset and are counting on generating returns by increase in the value of the asset. This category of investment has the potential to generate the highest returns, but it comes with its own share of risks. Stocks fall in the category of ownership investments. When you buy shares of a company, you become a part owner and get a stake in the company's profits. If the company performs well, demand for its stock rises, driving up its share price and generating returns for the investors in the form of capital appreciation.

Lending investments: These can be categorized as safe investments that have lower risk than ownership investments, but also generate relatively lower returns. A bond belongs to this investment category in which the investor lends money to an organization in exchange for interest payments over a specified term plus repayment of principal at the bond's maturity date.

Cash equivalents: These are highly liquid investments which can be converted into cash very easily and quickly without any loss in the value of the asset. Money market funds is an example of cash equivalents. These investments generate low returns, but come with practically negligible risks.

When it comes to creation of long-term wealth, there are numerous options available to suit every investor's needs. Some of the most rewarding investment options are listed below:

• Mutual Funds: A mutual fund pools in the money of investors with a common investment objective and invests in different securities such as stocks, bonds, money market instruments and other asset classes depending on the investment objective of the scheme. It is managed by a professional fund manager who aims to outperform the benchmark by conducting in-depth research and analysis before making any investment decisions.
• Equity investments: An investor can participate in the profits of a company by buying shares of that company. Though equity investing is well-known for its wealth building capabilities over the long-term, it's a highly volatile asset class which comes with its own share of risks. Investing directly in equity can prove to be a cumbersome task for a novice investor as it requires a thorough understanding of the capital markets.
• Public Provident Fund (PPF): PPF scheme is a long-term investment option backed by the Government of India which assures safe returns along with moderate returns that are fully exempt from tax. An investor can invest a minimum of Rs500 and a maximum of Rs1.5 lakh in a financial year.
• Unit Linked Insurance Plan (ULIP): It's a life insurance product which not only provides risk coverage for the policy holder but also provides an opportunity to invest part of the premium in equity, bonds or even mutual funds.
• Bank Fixed Deposits: A fixed deposit is one of the most common and preferred method of investment in India. It is a suitable investment option for conservative investors with a low risk appetite.

Before making an investment decision, it's important to not only understand the risk-return trade off of the investment option selected, but it's equally important to ascertain that it suits your investment objectives.