As an investor, you must have heard this term a thousand times in your life, today let’s understand the term asset class and what are the types of Asset Class.
In layman’s terms, you can say that an asset class is a group of similar investment vehicles, they have their risks and rewards, with low correlation to other investments.
Different classes of investments are grouped together for having a similar financial structure, ex. Fixed income investments. Let us now discuss the various asset class and how much risk do they come with:
What is an Asset Class?
An asset class is a group of similar investment vehicles. Different classes, or types, of investment assets – such as fixed-income investments – are grouped together based on having a similar financial structure. They are typically traded in the same financial markets and subject to the same rules and regulations.
Now let us discuss the different types of Asset classes?
- Fixed Deposits: Fixed Deposits or commonly known as FD’s are low-risk financial instruments that are offered by banks, post offices or NBFC’s. They are safe and low-risk investment options but they give the lowest returns compared to the other asset classes. Fixed deposits have lock-in periods of 2-5 years or more.
- Gold: Gold is considered to be one of the best hedges against all the major asset classes like Equities, Bonds or Real Estate. The biggest benefit of gold in India is it can be easily liquidated. As Gold is not involved in any inflations it is a safe and stable investment option. The risk that gold carries is when the market falls investors open rush to buy gold but when the market corrects itself they might face some serious losses.
- Real Estate: Considering Real estate as an asset class is a different ball game altogether, the main advantage that you get is a good sum of money by renting your property. This amount also increases YOY, it also depends on the location that the property. Real Estate also gives tax benefits (80C). The risk that it comes with is it requires huge capital, it is highly illiquid and can take high maintenance cost.
- Stock or Equities: Equities are share of ownership issued by publicly traded companies. In India, they are traded under Bombay Stock Exchange, National Stock Exchange Calcutta Stock Exchange etc. in the US it is NYSE, NASDAQ etc. The main source of profit is when the stock price rises or on receiving dividends. Equity asset classes are also further divided into companies as per their market capitalisation, they are as below:
- Large-cap stocks
- Mid-cap stocks
- Small-cap stocks
Risk Factor in Equities: The biggest risk in markets are they are volatile and they can cause huge losses to the investors.
Which is the Best Asset Class to invest your money in?
The answer to this question is simple, go for the asset class that gives the best returns i.e Equities, but now the question arises that but then they have the highest risk. The answer to this is StockBasket-India’s first buy and hold long-term investing platform, it is SEBI experts curated ready-made basket of stocks designed as per the investor’s financial goals like International Vacation, Retirement plans, Home Decor or saving for one’s child education.
StockBasket is India’s first buy and hold long-term investing platform, it operates under the Samco brand. It has a pool of expert-curated ready-made basket of stocks designed as per the investor’s financial goals like International Vacation, Retirement plans, or saving for one’s child education. Investors have to hold the basket for at least 5 years for wealth creation.
The best approach to invest in equities can be to invest in the best stocks that have given and can give superior returns in the long term, StockBasket exactly works on the same principle, thereby it reduces your risk.