Equity, Derivatives (Future or Option), Mutual Fund and IPO are various asset classes used by the investors or traders as per their risk taking capability. We will observe that the asset class having a higher risk possibility with give us more return and the asset class with low risk possibility will give comparatively low return. Now lets understand about these asset classes in detail and then we will try to understand, where to invest our money.
Mutual Fund: Mutual Fund is an investment option where risk possibility is low compared to others. Ideally it is advisable to all investors to invest in Mutual Fund SIP (Systematic Investment Plan) with a long term goal. Investors are not required to be a stock market expert to invest in here, as it is taken care by fund expert or we can say fund manager. The role of a fund manager is to select best stocks from the market and to invest the money of investors in these stocks.
Equity: Equity means stock or share where investment is little bit risky when compared to Mutual Fund. There are so many companies listed in share market and it is very difficult to identify which share is good for investment. An investor having a good knowledge of the market should only invest in these kinds of instrument. An investor can also consult a professional market expert who can help them to invest in good shares and create a good financial portfolio for them. Returns from equity investment are more when compared to Mutual Fund.
Derivatives (Future or Option): These are contract based financial instrument mainly meant for trading in the market. Derivatives can be a Future Contract or an Option Contract which have an expiry date. It can be a weekly or a monthly expiry according to the contract. An investor have to execute and take an exit from his position before the expiry of contract. A person having a deep knowledge of market uses these financial option to grow their wealth. A person not having a knowledge of market should not invest their money here as this could be very risky and you could even make a huge loss.
IPO (Initial Public Offering): Stocks listed in market can be traded, purchased or sold easily from exchange. Shares of a company which are not listed in stock exchange cannot be purchased through exchange. To list a company in stock exchange, company releases IPO application where investors purchases shares for the very first time of these company. When these companies get listed in the market, share holders can sell their shares through exchange. It is observed that shares of a good company gives very good return to their investors at the time of listing so investors use to apply in IPO to get listing gain from their investment. A person should always consult a financial adviser before applying in these kinds of instrument. IPO can also be sold at the time of listing to get listing gain or an investor can also keep it as a long term investment if he thinks that the company profile is good for long term.