What Is Stock Market Investment And Its Types In India?

Stock market investment is the most common type of investment for any investor. However, it is an abstract term, and one needs to gain a clear understanding of the types of stock market investments before putting his money at stake in one of these instruments. 

Due to the sheer variety of stock market investments available to an investor, it can get overwhelming to select the ideal investment vehicle for one’s portfolio. A demat account is a basic requirement for delving into the Indian stock market. Once you know what is demat account, you can look at the various types of stock market investment avenues available to an Indian investor. 

Types of Stock Market Investments

• Shares or equity: It is the most popular investment type in the Indian stock market. Under this investment type, a retail investor buys the shares of a publicly traded company and becomes a part of its ownership. You can invest in shares with a long-term horizon or trade in them for short-term gains. Buying and selling shares in the stock market generate profits for investors and traders. You can trade or invest in shares of multiple companies and this investment type remains neutral to the inflation rate. However, equity investments can expose the investor to a considerable amount of risk. You must educate yourself on the right procedure for investing in shares, gain knowledge about the markets, opt for free demat account opening for earning better returns, and invest according to your risk appetite. 
• Commodity: When you invest in goods or assets of various sectors such as agriculture, precious metals, crude oil, etc., you invest in commodities. Trading commodities is different from share or equity trading. You can trade in commodity investment through derivatives (Futures and Options). Simply explained, derivatives are contracts between a buyer and a seller that have all the details about the trade, like the quantity of an order and its execution time. The share market timing for commodities is different from the equity market (9:00 AM to 11:55 PM for non-agri commodities / 9:00 AM to 9:00 pm for agricultural commodities).
• Currency: The foreign exchange market is known as the currency market or Forex. Investors and traders in our country can trade in four types of currencies, Dollar, Pound, Yen, and Euro. The exchange rate of these currencies at a point in time decides the profit or loss of the investor. Investors in forex take advantage of the fluctuations in the global exchange rates. 
• Mutual Funds: Collecting investors’ or traders’ assets result in mutual funds. It is advisable to invest in mutual funds through an experienced and knowledgeable Fund Manager who can pick the right investment for you. Various assets can be compiled to create a mutual fund. These assets include commodities, currencies, shares, bonds, etc. A mutual fund investor needs to have a risk appetite similar to an equity investor but he has better chances of profit-loss balancing. 
• Bonds and debentures: Corporations, municipalities, and state and central governments issue bonds with the objective of raising money to fund their short-term or long-term projects. Retail investors can buy bonds, which makes them a lender for the bond issuer. The bond issuer pays a predetermined coupon rate to the bond investor for the fixed life of the bond. Upon maturity, the issuer returns the entire capital of the investor. These days, floating-rate and zero-coupon bonds are also gaining popularity in India. Bonds are low-risk investment avenues that offer fixed returns over a known duration to the investor. Debentures are similar to bonds, but their risk element is relatively higher than bonds. Issuers roll out debentures for particular objectives like expansion. 
• Government securities: Also known as G-Sec, government securities have a functionality similar to bonds. The difference is that whereas corporations, municipalities, etc., can also issue bonds, government securities are issued exclusively by the central or state governments. These governments issue government securities to raise funds for development projects. As these are government-initiated and regulated securities, the risk tagged to them is relatively low. The duration of government securities can be anywhere between 5 to 50 years. 

Once an individual has acquainted himself with the various investment options available in the stock market, it becomes convenient to select the right option for investment. 

Read also: Guide To Open An Online Demat Account In A Few Easy Steps