For a Pakistani, there are numerous investment avenues available, both Shariah-compliant and non. Investment is necessary to save your "money" from losing its worth. It is, as famously quoted, a methodology in which you make your money make you money.
However, before investing your hard-earned money, it is essential to make sure that you do your research and understand the risks involved. This blog will cover the various investment avenues you can explore to help you make a profit.
1• Fixed deposits
This is perhaps the least risky investment of all. This method entails depositing your money (a fixed sum) into a bank account, commonly called a 'Savings Account.' In return for handing the bank your money, the bank pays you a pre-decided fixed rate of return. This rate stays the same regardless of economic, social, or political changes.
The annual return is often at or close to the risk-free rate, the rate of return at which risk is said to be non-existent. Shariah-compliant versions of these accounts also exist where returns are not pre-defined and vary depending on certain circumstances.
This is the ideal investment avenue for risk-averse investors.
Commodities are a less commonly taken investment route. They are physical assets that can be traded against other assets or cash. They include metals (gold, silver), agriculture (wheat, corn), and energy (oil, gas).
While it can be a very lucrative investment avenue for those willing to take on risk and have an appetite for volatility, it's not for everyone. Commodities like precious metals and energy products tend to increase in value when economic conditions are poor – especially, during a recession or a stock market crash, making them an excellent hedge against inflation.
They also tend to lose value when the economy experiences growth or expansion and also risk abrupt price changes due to events such as war or adverse political environments.
Two main ways to invest in commodities: through futures contracts or through buying the physical assets themselves, though the latter requires more work.
What might be the most common investment avenue worldwide, stocks are a simple type of investment. When a person buys a stock, they are purchasing a part of the company that is being publicly traded.
Some of the biggest companies in the world are publicly traded, such as Apple, Microsoft, and Tesla.
Stocks can be bought in small amounts, and since shares are traded on the market, they're more liquid than other investments – a big plus when it comes to risk management!
Stocks work well as long-term investments. Their prices change regularly based on factors like earnings expectations and interest rate changes that affect the value of companies' debt. Due to their volatile nature, they are mostly not an investment class for people who need short-term access to their money. Doing so may result in losses.
Tip: While investing in stocks, you make gains when prices rise and vice versa, and if you are not careful, you risk losing your entire investment pot due to poor market conditions.
4• Mutual funds
Mutual funds are a type of collective investment. A mutual fund pools money from many investors, who pay an annual fee in exchange for having their money managed by professional fund managers. The managers invest pooled capital in a variety of securities like stocks, bonds, and other assets.
There are many different types of mutual funds, each offering different levels of risk and reward.
You pay a small sum to the fund manager (usually 2%) for managing your portfolio on your behalf and they do your trading for you. When the fund makes a profit, you make a profit.
Cryptocurrency is a digital currency that uses cryptography to secure transactions and control the creation of new units. This means that it is independent of any government or central bank. Bitcoin, Ethereum, Litecoin, and Ripple are some examples of cryptocurrencies.
Cryptocurrencies have become very popular in recent years due to their decentralization, anonymity, and increasing global acceptance, with El Salvador declaring Bitcoin as legal tender. The most well-known cryptocurrency is Bitcoin which was created back in 2009 by an unknown person using the alias Satoshi Nakamoto who remains anonymous to date!
Cryptocurrencies are the most volatile asset class on this list. While stocks provide some stability; cryptocurrencies are riskier investments that offer the potential for great rewards with greater risk.
Note: Cryptocurrencies are not recognized as a Legal Tender nor are authorized or licensed by the SBP.
6• Real estate
Real estate has always been the world's go-to investment avenue. Apart from residential and commercial projects, the real estate sector offers massive prospects for several industries including hospitality, retail, manufacturing, warehousing, schools, and much more.
Being tangible in nature and limited in supply, it’s the most preferred investment avenue. Developmental real estate, which is the process of improving the property to increase its value, offers returns of up to 50% per annum. But, being an illiquid asset, real estate can be hard to sell in cases of emergencies and is generally considered a high-ticket item.
PropTech organizations that aim to democratize real estate have come up with a modern solution to real estate problems. Using modern technology, real estate projects can be fractionalized, eliminating the huge barrier to entry. Furthermore, digital real estate marketplaces can be set up where fractionalized real estate can be traded, addressing the illiquidity issue.
DAO PropTech offers numerous real estate projects on their platform – with each of them serving different investment needs! Be sure to check them out as these projects have been chosen through a rigorous selection process, hence, are the best in their class.
As an investor, you have a number of options at your disposal. You should consider your limitations (e.g., risk appetite) and strengths to find your best investment fit. In short, it is best to minimize risk (and maximize gains) through an apt diversification strategy. It is always best to know your investment purpose.
Do you want a passive income, capital gains or a straight-out profit? These methods not only help you navigate the world of investing but also determine what avenue is the best for you. DAO PropTech also offers numerous real estate projects that can be accessed via an end-to-end digital investment/ownership journey. These projects fulfill different investor requirements, from generating a passive income to increasing capital gains – we have it all covered.
Get in touch with us now to know more about our offerings!