Different Avenues/Asset Classes

for Investment

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Investing Options

• Asset classes refer to the various assets that are available

for investment

• Each asset class has different risk and return

characteristics, and functions in a unique way in different

market environment

• Depending on the risk appetite & investment horizon of an

individual, he can choose to invest in a combination of

asset classes to optimize his returns

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Types of Asset Classes

• Asset classes include a group of securities with varying

degrees of risk. These are:

Equity

Fixed Income/Debt

Cash and cash equivalents

Real Estate

Commodities

Gold

Other Alternative Assets

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Equity

• Features: Equity (also known as a stock or share) is a portion

of the ownership of a company. A share in a corporation gives

the owner of the stock a stake in the company and its profits

• Risk level and potential return: High

• Liquidity Aspect: High relative to other asset classes

• Tax Considerations: Short term capital gain tax – 15% (Shares

are sold prior to minimum required period for it to be classified

as ‘long term’)

Long term capital gain tax – NIL (Shares are held for more than 1

year)

• Options available for investment: You can invest directly in

individual companies but if you lack knowledge about the market,

you could choose to invest in equity mutual fund schemes

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Debt/Fixed Income

• Meaning: Bonds, commonly referred to as fixed-income

securities that provide a regular stream of income over a

specified period of time. It can also give a guaranteed return to

investors on their capital on a set date in the future

• Risk level and potential return: Low to medium

• Liquidity Aspect: Medium to high (Low for PF)

• Tax Considerations: Interest or any other income from

bond/debt or any other fixed income securities is taxable as per

marginal tax slab for an individual

• Options available for investment: Investment includes Bank

and Corporate FDs, Corporate or Government bonds/

debentures, PO schemes, Provident funds and Mutual fund

fixed income schemes

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Cash and Cash Equivalents

• Meaning: Cash is the generic term for investments that are

highly liquid. They are extremely safe and invested for a short

term period

• Risk level and potential return: Low

• Liquidity Aspect: High

• Tax Considerations: Interest earned from t-bills or any other

notified government bond is exempted from tax liability under

section [10(15)]. All other interest earned from non-exempted

avenues and cash in bank is liable for income tax as per

marginal tax slab for an individual

• Options available for investment: Cash assets generally

include Money market MFs, CASA, T-Bills, commercial papers,

money market instruments, short-term government bonds, etc.

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Real Estate

• Meaning: Real estate includes direct property and listed Real

Estate Investment Trust (REIT) investments across residential

and commercial sectors

• Risk level and potential return: Medium to high

• Liquidity Aspect: Low to Medium

• Tax Considerations: Profit on sale of real estate asset is liable

for capital gain tax as per the holding period of the asset

• Options available for investment: This generally includes

houses, flats, land or any other built or unbuilt area available for

sale

8

Commodities

• Meaning: Commodities include oil, metals (such as gold,

copper), minerals, agri-commodities etc. Commodity trading

helps you hedge against inflation and buying into a portion of

global demand growth

• Risk level and potential return: Low to medium

• Liquidity Aspect: Medium to High

• Tax Considerations: Income from commodity trading is taxed

as per the marginal income tax slab for an individual

• Options available for investment: Investment in commodities

can be done either directly through the commodity exchange or

through various mutual funds with a directive of investing in

commodities

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Gold

• Meaning: Gold is regarded as one of the best hedging tools –

be it against inflation, currency, stocks or debt securities. It is

considered a safe haven during times of economic crises

• Risk level and potential return: Low to medium

• Liquidity Aspect: High

• Tax Considerations: Investing in gold does not entail any tax

implications. Profit on sale of any ornament or any other article

made of gold or where gold is used will be liable for Capital Gain

Tax (short/long term) as per the holding period at the time of sale

• Options available for investment: Investment in gold can be

made through buying physical gold, gold ETFs, gold MFs or by

holding them in electronic form on spot exchanges

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Other Alternative Assets

• Meaning: Alternative assets are investment vehicles outside of

the traditional asset classes of stocks, bonds and cash

• Risk level and potential return: High

• Liquidity Aspect: Medium to High

• Tax Considerations: For most investment routes listed below,

taxation is as per short term/long term capital gains. For some,

it is as per Marginal Tax slab for Individuals

• Options available for investment: Investments in alternative

assets can to be done through options, derivatives, venture

capital, mezzanine finance, private equity, art, etc.

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Choosing the Right Asset Mix

• The right asset mix should:

help balance risk with your expected rate of return on

investments

match with investment horizon

fit your risk tolerance/appetite

change as your needs and goals change over time

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Risk-return Relationship

• While selecting investments,

remember the trade-off

between risk and return

• The higher the return you

want, the more risk you'll

need to accept

• Diversification across

different asset classes is

a good way to reduce risk

Risk & Return Across Asset Classes