What is Investment?

These are instruments that pay fixed income – irrespective of the changes in the business or economy. Bonds, debentures and Fixed Deposits fall under this category. Also, special investment vehicles – PPF, EPF, SCSS, Sukanya Samriddhi, National Savings Scheme and other small Post Office Schemes created by a government statute for specific purposes are low risk as they guarantee the returns. The returns are periodic and pre-determined.

Low-risk investments are not often linked with stock market movements and are usually governed by the interest rate movements of the financiers. However, there is always the returns are always guaranteed. Government bonds and life insurance policies provide good returns. However, they have long lock-in periods. So, you will have to wait for a long time to earn substantial returns from these investment options. Fixed Deposit is one of the few low-risk investments that offer stable, high returns and immediate liquidity.

These investments might have a certain percentage of risk, but these also pay higher returns to investors willing to invest in them. Debt funds, balanced mutual funds, and index funds are a part of this category. Such instruments have an element of debt and stability, but they have their volatility linked to the markets, which can hamper your principal amount. The irregularity in earnings can make any fixed income from such investment impossible.

These are investments where there is no limit to the upside along with the downside of risk-returns. These are stocks of companies, equity mutual funds, even stocks, and derivatives. The return on these instruments can give huge returns and chances of losses depending on various external factors to the company and internal ones. The quantity and timing of returns on these instruments are not fixed. Hence, they are at high risk.