Top 5 Types Of Investment Strategies | What Is The Most Effective Investment Strategy?

In any corner of the world, investors want more and more returns on their investment. And that is the main reason traditional investment options are becoming outdated, especially among those who want high returns. (More than 18% per annum at least).

Because of their low rates of return, traditional investment options are fast becoming outdated. Investors are increasingly searching for investment opportunities that offer big returns on their money as inflation continues to rise.

Public Provident funds (PPFs), Gold, fixed deposits (also known as FDs) are the some of the popular Traditional Investment Options, that are chosen the most frequently by investors.

Stable and consistent returns are what make these assets so popular among investors in the first place.

Before we move on, let's first go through the basics of what we mean when we talk about traditional investments, which were discussed just a moment ago. So that one may understand the reason for the popularity it has earned from investors.

  • Fixed Deposit: Banks and non-bank financial institutions (NBFCs) provide it as a type of money market product for conservative investors; fixed-income investments such as FDs offer a better rate of return than standard savings accounts because the amount of money an investor makes on an FD is greater.

 

  • Gold: Gold has long been seen as a safe haven for conservative investors who want to make a sizable profit. It's a money market instrument with a lot of float. 

 

  • Additionally, it provides the opportunity for an investor to protect their wealth against inflation by preserving their purchasing power even in the midst of a global economic downturn.

 

  • Public Provident Funds: In 1968, the Public Provident Fund (PPF) was launched in India with the goal of encouraging little amount of savings of investment, with the promise of a return on the investment. 
    • It is also possible to refer to it as tax savings investment vehicle, which is a type of investment vehicle that enables an individual to accumulate savings for retirement while reducing their annual tax liability. If you're looking to save money on taxes and get assured returns, you should consider investing in a PPF. 
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  • Let's Look At Several Alternatives To The So-Called "Traditional Investment Options."

When compared to "Traditional Investment Options," there are now a large variety of alternative investments that offer higher rates of return. The following is a list of what are considered to be the most well-known alternative investment options:

  • Liquid Funds: Your funds are put into very short-term market instruments such as treasury bills, call money, and other sovereign bonds. There are many cases in which the maturity is far lower than 91 days. 
    • A conservative investor who wants to explore beyond the shell of conventional investment choices but still desires a short-term investment would be best served by these investments, which are very liquid.
    • STPs are another service that they provide, which enables investors to transfer their holdings to another fund of their choosing. Liquid Funds are the greatest solution for investors who need a safe place to save their extra cash. (STP = Systematic Transfer Plan). 
  • Index Fund:  Many investors are aware of the benefits that may be gained by diversifying their portfolio with the assistance of index funds, and they are looking to do so. List reserves are in this quest since they invest in a larger market file, such the Sensex or Nifty.
    • It is likely that each and every one of the stocks listed here will have a representation in their investment basket. This ensures, at least in theory, an exhibition that is different from the one on the list that is currently being followed. Its primary differentiating factor is it’s relatively low cost.
    • There will be buying and selling activity in an investor's portfolio whenever there is a shift in the composition of the investor's portfolio, regardless of whether the shift is positive or negative.
    • A money market tool like this is steadier than a equity fund, which is more risky.
    • They make it possible for an investor to not only become the owner of a portfolio that is extremely diversified but also to obtain, over the course of time, a large amount of returns on his investment.
    • They are relatively less risky which makes them a great alternative for investors who are looking for something a little different than the FDs, PPFs or other 6-7% per annum schemes.   
  • Hedge Funds: A hedge fund combines cash from single or large investors to invest in diverse assets, using complex procedures to develop its portfolio and control risks. 
    • This is one of the numerous ways in which hedge funds differ from mutual funds, which typically only invest in stocks or bonds, because they can invest in anything from housing market to commodities and other alternatives. 
    • It doesn't matter if the market is rising or falling; the ultimate goal of every hedge fund is to maximize returns while minimizing or eliminating risk for its investors.
  • Debt Fund: Mutual funds that invest in debt securities such as government bonds, treasury bills, marketable securities, corporate bonds, and other debt securities of various time periods according to the flexibility of the investor are called debt mutual funds.
    • In this scenario, the money is put into a plan that has a predetermined rate of return on investment (interest) and a certain date when it will be completely repaid. It is also known as fixed income funds.
    • Short-term capital gains tax is due if the investment in "Debt funds" is held for less than three years; long-term capital gains tax is due if the investment is held for three years or more.
    • If and only if an investor decides to cash out his holdings in "Debt Funds," then and only then is he required to pay a predetermined amount of tax. A tax-saving money market tool, they are.
  • Equity Funds: By investing in the equities of companies of all sizes, equity mutual funds hope to generate substantial returns. 

Investments in equity mutual funds, which are more volatile than those in debt and hybrid mutual funds, can result in larger returns than those in other mutual funds. When it comes to calculating the returns for the investors, the success of the company is a crucial factor.

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