Investment Options

Only way to secure financial freedom is to use your money to make money for you. In financial world there are two kind of investment options for a investor -

• Fixed Incomes Related
• Equity Related

A third type which usually is not recommended for normal investor is called derivatives.

Fixed Income - 

These are the options where returns are fixed and there is no risk(generally) to the principal. Most common of them all are Fixed Deposit or Bonds (Govt.,Corporate). There are alternatives like PPF, EPF,Post Office Savings, NSC and other debt related schemes.

Since there is no risk(generally) to the principal, these are considered the safest investment vehicle .There are many Mutual funds who invest only in debt(FI) securities and are considered most safe.

Equity Related -

Buying a stock/share result in ownership of the company and the returns are not fixed but are linked to company performance. Advantage here is that your returns can be much greater than FI securities however there is risk of losing on the principal if company performs badly.

Mutual funds which invest in stocks are called equity related funds. There could be companies who are not well established yet and are growing, investment in such companies is riskier than Blue Chip companies however the returns could be more as well. 

Risk classification of mutual funds is done based on the kind of stocks they are choosing to build the portfolio.

Derivatives-

These are instruments which derive there value from other securities, other securities are called underlying. Underlying can be FI or Equities and these can be extremely complex, making them difficult to understand. These can be risky and can cause heavy losses in small time if not traded properly.