An Asset is something that helps to produce either income or revenue. It is present in different forms. Like if you own a second flat which you have given on rent, from there, you are getting a fixed amount per month, so that flat is your asset. If you have your investment in equity mutual funds, that gives you a return after a certain period that is also your asset. Basically, these are financial assets, where we invest money in the hope of some return.
Well, growth or returns are of two kinds, income, and gains, they are different from each other and cannot be replaced by each other. When you decide to invest in a financial asset, be clear about what your asset is offering you, income, or gains, or both!!
Let u see in detail about financial assets that offer income, gain, and both.
Financial Assets That Offer Income!!
In investment sectors, financial assets like corporate or bank fixed deposits, corporate bonds, government small savings schemes, provident fund, offer fixed returns, and thus they are taken as a financial asset that offers income.
The return from these assets is in the form of fixed interest income, the time and the amount of payout are also predefined. Usually, the income is specified as interest which is a percentage of the amount you invest.
From these assets, no other gain can be expected other than the fixed income. The disadvantage that these assets associate with is that the income through interest may fall short in times of high inflation in the economy. However, its benefit is the certainty of its returns (as it is fixed), make it low risk and the best option for investors to opt for their fixed income part of the portfolio.
Financial Assets That Offer Gains!!
Financial Assets like gold, commodities, and digital assets like cryptocurrencies and bitcoins, are assets that offer returns in the form of gains and not income. Gains in these are non-linear and high volatile in the short-term. Here as these assets have no income return, volatility can be sharper in the near term.
Basically, these assets are considered riskier among all the three types of financial assets, and thus if someone plans to invest in these they are suggested to invest a very small portion of their portfolio in these assets that too with proper strategy and proper financial consultancy.
Financial Assets That Offer Both Gain And Income!!
Assets that offer both gain and income are generally referred to as growth assets, like equity market and mutual fund investment. These assets help you build long-term wealth, by reinvesting your investment again and again. Income from these assets is basically in the form of dividends paid on a regular basis.
In mutual funds investment gains refer to change in the price of units which can vary on a daily basis. While you can expect some income from your mutual fund investment every year, gains from price change are not linear and you need to remain invested for a long time to see those benefits.
There are some other assets also that earn a regular income for you but in some other form, like your real estate property brings regular income in the form of rents. These are pre-contracted and defined, hence predictable. On the other hand, gains that you can make from selling a property at a price higher than what you bought it for are the gains you look forward to in the long run.
So basically, in all these assets be it mutual fund, equity market or real estate, gains are not linear, and one has to remain invested for long period to reap the good benefits.
Keep reading for more updates on Mutual Fund Investment!!
For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).