Investing routinely refers to the process of stashing away any excess income towards instruments from which you can expect to earn a return, or profit, in the time to come. Every investment you make is made with the purpose of growing your corpus of funds, to make room for a more financially stable future.

What Do You Mean by Investing? How Does It Work?

Investing refers to the process of routinely depositing your excess cache of funds into financial instruments that will offer you a return on your investment, over a certain period of time. Here, it is vital that we note the difference between savings and investments. While savings are short-term in nature, meant for meeting short terms needs and requirements, investments are more long-term in nature, designed to offer you a profit down the line.

When looking at investments, we need to understand two factors – income generation, and appreciation.

When we speak about appreciation, we refer to the practice of investing in an instrument when the value has dipped and then selling it at a higher price – thus earning a profit.

When we speak about income generation, we refer to investments in the stock market, and other financial instruments – those that offer us revenue at routine intervals of time.

The Most Common Forms of Investments

The four most common forms of investments in the market today are:

  • Stocks: When a company goes public, it sells shares in the form of stock, with the purpose of raising money for further investment. If you buy shares of a company, it makes you a part-owner of the company, offering you a yearly dividend, based on its profit structure.
  • Bonds: Both countries, as well as companies, offer you the option of purchasing bonds – purchase of which implies you have offered a loan to the company/country by investing in it. This makes you eligible to receive a fixed interest over a certain period of time but offers you lower rates of return as compared to stocks.
  • Real Estate: Property value always appreciates with time, and thus investing in land or property is a great form of investment. Additionally, you can also opt to invest in shares of a real estate investment trust (REIT) company, which will offer you stable returns over a long duration.
  • Commodities: Investing in commodities – be it oil, gas, agricultural products, metals, and so on, is a great bet – as market demand and supply determine their value. A shortfall in any product will greatly optimise your return on investment.
  • Mutual Funds: The advantage of investing in mutual funds is that it lets you invest in a combination of market instruments such as shares, bonds, real estate, commodities, and so on. Investing in the same is a great way to diversify your portfolio and can also offer you lucrative returns on your investment.
  • Fixed Deposits: Offering you a higher interest rate than a regular savings account, Fixed deposits are great avenues to park any excess funds you possess. They are offered by both banks as well as Non-Banking Financial Companies (NBFCs) and are a great way of diversifying your investments.

Importance of Investing

Investing any surplus money you have, on a routine basis, offers you financial security, by not only offering you routine returns on investment but also ensuring that your wealth grows faster than the prevailing rate of inflation. Additionally, most forms of investment offer you compounding rates of interest, accompanied by a host of tax advantages. Investing now, while you are earning, can help you meet your financial goals, and can help provide for a much more secure life, financially, when you retire.

When Should You Start Investing?

There is no fixed age to start investing. The sooner you start doing so, the better it is for you, as this will help you realize greater profits and returns on your investment. Whenever you decide to start investing, start by creating a budget for your spending, limiting all forms of debt, and setting aside a fixed amount every month specifically for the purpose of investments.