Are you one of them who spends hours on the internet searching for answers to this question? If yes, then this article is the destination of your journey. Here, you will know about the five best investment tools to get the highest returns on your investment, with the lowest possible risk. Before we begin, remember to invest cautiously as the primary principle of investing is to safeguard your invested capital. After all, what is the point of earning returns if your capital is not safe? Hmm?
Things to Consider Before Investing
Before knowing the best investment tools, you should consider the following criteria:
- Investing for Long Term: Trading may be more exciting and may give you more returns, but long term investment is the key to get high returns with low risk. It is so because trading requires a lot of time to analyze the price movements. It is also dynamic and can change drastically in the blink of an eye. On the other hand, long-term investing requires one-time analysis and is less dynamic than trading. This way, you can get returns even when you are not monitoring the stock market.
- Never put all of your eggs in one basket: It is always a wise strategy to diversify your investments. It helps in minimizing the loss from one type of investment. You can invest in different tools like equity, debt, real estate, and gold. Also, crypto has become an attractive investment tool, considering the returns and the future potential.
- Invest wisely: You should invest in what you know. Avoid investing solely on tips and do proper research before investing your hard-earned money. It prevents others from deceiving you and secures your capital.
After knowing and applying the above rules, let's look at the investment options to get the highest returns:
Mid-Cap Mutual Funds
Mutual Funds Sahi Hai! It is a line most of you would have come across once in a while. So, we presume that you already have an idea about mutual funds.
Anyway, mid cap mutual funds are considered a hybrid of large-cap and small-cap funds. They give higher returns than large-cap funds with relatively lower risk than small-cap funds. Investors avoid investing directly in these companies as they are less popular among stock market enthusiasts. So, mutual funds become a better option to invest in mid-cap companies.
These are managed professionally by Asset Management Companies (AMCs). Also, the investment amount can below. So, they have become a suitable investment option to invest indirectly in the mid-cap sector. But don't forget to analyze and compare the returns and the associated costs before investing in a mutual fund.
Real Estate Property (before launch)
If you have searched the property prices in metro cities, you will see how difficult it has become to own property! It is because the value of properties increases with time. So here is a trick to buy property at low prices: Buy them before the launch.
In this stage, the developers offer attractive discounts. With time, the value of property increases. Any infrastructural development nearby is a cherry on the cake. For example, the construction of Jewar Airport at Noida has increased property rates exponentially.
It helps in getting high returns at the time of sale. Meanwhile, you can rent it out to earn passive income through rent, which can be invested to obtain the wonder of compounding!
Exchange Traded Funds (ETFs)
Warren Buffett rightly said, "By investing in index funds, the know-nothing investors can actually outperform most investment professionals." The statement proves itself, which can be evident from the 2020 returns. On average, the index funds gave a massive return of 30% in the previous year!
As the name suggests, Index ETF is the mutual fund similar to a stock market index. It is the right tool for getting decent returns at the lowest equity risk possible. It is so because the expense ratio is the lowest among different mutual funds and the stocks are the leaders in their respective sectors. It is the best investment option for a person to invest in mutual funds without any prior knowledge.
But they are not the best tool for getting the highest returns. The returns are lower than active mutual funds. And the growth potential is lower besides stocks traded at premium valuations.
Real Estate Investment Trust (REIT)
Want to invest in real estate but not able to afford the heavy investment? Don't worry. We got you covered.
Real Estate Investment Trust are an emerging investment option that owns and operates real estate to generate income. In simple words, they are mutual funds that invest in real estate rather than stocks. It helps you in earning rent from a property without investing lakhs of rupees to buy one! Or the hassle of managing one.
A suitable investment portfolio offers you high growth, besides giving hefty dividends. To fulfil the dividend part, REIT is an appropriate investment tool. It helps you to get steady income regularly without compromising with liquidity or investment amount.
But REIT companies have low growth prospects and lack tax incentives. So don't be greedy to expect high dividends and capital appreciation.
It is a share that trades at lesser than the intrinsic value. Value stocks are the most popular ones to invest in through fundamental analysis. But they are underrated as most people in the stock market are impatient and want quick money. So they analyze only the price charts, completely ignoring the detailed analysis of a company.
To find out these stock market gems, analyze the free cash flow and the dividend yield. Important ratios like P/E Ratio, P/B Ratio should also be considered. All of these help in determining the intrinsic value against which the current market price is compared. If the market price is less than intrinsic value, Congrats! You have found a value stock.
To get high returns, you should prefer long-term investment. Diversify the portfolio and invest only after doing thorough research.
Some appealing investment options which fetch high returns include mid-cap funds, which give more returns with low risk. You can buy real estate before its launch to get amazing discounts. Index Funds are suitable for retail investors who don't have much knowledge about investing. REITs help in earning dividends regularly without requiring substantial investment. Value stocks are the most attractive option for long-term investing.
Have any better options? Suggest them in the comments below.