Saving for your child's education or to build a home... It pays to be aware of where and how to invest your money. As the first step towards investing, get to know the basics and the types of investments.

In financial terms, Investment refers to the concept of 'deferred consumption'. This involves purchasing an asset, giving a loan or keeping funds in a bank account with the aim of generating future returns.

As experts say, you must start investing from the day you start earning. Although savings may differ from person to person, you should try and save alteast 20-25% of your income.

Various investment options are available today, offering differing risk-reward trade offs. An understanding of the core concepts and a thorough analysis of the options can help you create an ideal investment portfolio that maximizes returns while minimizing risk exposure.

Cash investments
These include savings bank accounts, certificates of deposit (CDs) and treasury bills. These investments pay a low rate of interest and are risky options in periods of inflation.

Debt Securities
This form of investment provides returns in the form of fixed periodic payments and possible capital appreciation at maturity. It is a safer and more 'risk-free' investment tool than equities. However, the returns are also generally lower than other securities.

Stocks
Buying stocks (also called equities) makes you a part-owner of the business and entitles you to a share of the profits generated by the company. Stocks are more volatile and riskier than bonds.

Mutual Funds
This is a collection of stocks and bonds and involves paying a professional manager to select specific securities for you. The prime advantage of this investment is that you do not have to bother with tracking the investment. There may be bond, stock- or index-based mutual funds.

Real estate
This investment involves a long-term commitment of funds and gains that are generated through rental or lease income as well as capital appreciation. This includes investments into residential or commercial properties.

Analysis is the key to making the right investment. Several factors need to be kept in mind when you are aiming to generate wealth - not just for yourself, but for your subsequent generations as well. So identifying multiple sources of income, understanding your financial expenditure, and sharpen your intelligence to take better financial decisions.

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