Asset classes can be seen as a big basket where all the financial products belonging to that asset  class share common characteristics. Things like risk, returns, liquidity, and various other  parameters are similar.  

There are five types of asset classes  

Fixed Income.   

Fixed Income asset class refers to the class of financial products where your investment amount  is more or less protected and the returns are either fixed or predictable to a great extent. There  is almost no/less risk in these products which are from the fixed income asset class. Investing  in a fixed income asset class is like lending your money to someone with the assurance of return  with predefined returns. So, when you make a fixed deposit in a bank, you are not exactly  “investing”, but lending your money to the bank with a promise that they will return back your principal amount along with a predefined interest.  

 Equity  

The equity asset class is an interesting asset class and slowly getting more and more acceptance  from the last 1-2 decades. Equity means ownership. So, when you invest in equity, it means  that you have bought ownership into a business. For example, when you buy stocks of Infosys  or Reliance, you become a small owner of that business. Because the equity returns are very  volatile, most people refrain from mutual funds investment or investing in direct stocks,  but they are the real wealth builders for any investors. There are mutual funds from various  Asset management companies that have a proven track record for building wealth for its  investors.  

Real Estate  

Real estate refers to physical space, or physical structure like land, residential flats, commercial  spaces, etc. These spaces are either used for living purposes or for doing business and  generating income. Over the last 2 decades, the real estate asset class has gotten tremendous interest  from investors. Everyone wants to own a home and real estate is a very sought-after asset  class. As the country develops and expands, many upcoming areas in all cities and a location  which was considered outskirts of the city becomes a very important location in the city. The  real estate market has cycles of ups and downs and returns from real estate can be very volatile and can depend on various factors like city future, govt policies, political situations and many  more  

Commodities  

Commodities refer to various types of physical goods or products which people can buy and  sell for various uses. Gold, Silver, Copper, Rice, and Oil etc will be counted under this asset  class. The price of these products depends on demand and supply in the market. commodities  are not for investing for the long term, but mainly for trading, where people can benefit from  the market cycles and predict demand and supply moves and get a profit or loss. Returns from  the commodities can be very volatile and each commodity has its own market and dynamics.  

Cash  

Cash not only means the hard cash bundles, but also the money lying in your savings bank  account, or liquid mutual funds. The best thing about cash is that it gives you the freedom to  “buy” anything you want instantly. You can buy a car, a house or a phone or invest your money  in other asset classes. The freedom you get with cash is very high and that’s one reason why  most people prefer to hold a lot of cash. Also, the cash cannot be tracked (unless it’s  several multi-crore rupees) and many people keep their black money in the form of cash.  

The world of personal finance has hundreds of financial products, which makes everything  confusing for an investor, but if you understand which asset class it belongs to, then this whole  world of personal finance will sound easy to you. 

Important link –  

1.https://www.openriskmanual.org/wiki/Financial_Products 

2.https://cleartax.in/s/asset-classes