Selecting a basic investment option for your portfolio is a bit complicated, where peoples who want to invest in the funds do not have the basic knowledge of the finances. The article discusses some of the most basic and famous financial instruments that a beginner must have in his portfolio. Most of the investors want the return with minimum risk in their hands but the reality is harsh, while you want to make the money in minimum time you have to take the risk. Different types of financial instruments differ based on risk, time, purpose and maturity.
Following are some of the basic financial investments options that are available in the market
1. Mutual fund - The mutual fund is the investment fund plan that pools funds from many investors to invest in any securities. The basic idea behind the mutual fund is that while investing in single security demands high risk but while investing in different types and ranges of security the risk diversifies. However, the return on a mutual fund is lower in comparison to a single investment in security.
2. Certificate of deposit - the certificate of deposit is a certificate issued by a bank to a person depositing money for a specific period. The certificate of deposit pays interest on the amount deposited for a specific period. It is the safest medium of investment available from the bank.
3. Derivatives – it is the most popular and useful medium of investment in the present market. Most of the traders trade in derivatives. Derivatives are the contracts that derive their value from an underlying asset. The underlying assets are a value of the commodity that is to be purchased or sell on the future date. The contract created in the present will be executed in the future and the profit or loss will be calculated by the arbitration.
4. Equity - Equity is the most common mode of investment that is used by an investor. The equity is the value of a share that is issued by a company; the value will be derived by the financial performance of the company. Equity offers its holder the ownership of the company in the percentage of share held by him. If a company makes a profit the holder of equity will also make a profit if the company suffers a loss the holder also has to bear the loss.
5. Bond – the bond is a certificate of debt issued by a company to its holders. The bond promises its holder to pay a certain sum of money on a specific date. The amount will be paid based on the interest rate that is decided in the general meeting of the company. Bonds are generally considered as safe while comparing to stocks. In the case of profit, the company on a priority basis first pays the return to its bondholders while comparing to other financial instruments issued by the company to its holders.