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1. WHAT IS INVESTMENT
INTRODUCTION:
In general sense, investment means saving. But it is not true, because saving means expending less than Income. & Investment means what one does with his savings. If one keeps his savings in the form of cash, it is certainly going to decrease in value because the value of money is constantly going down. Therefore, if one wants to maintain or increase the value of his saving then he has to keep savings in forms other than cash. That is what investment is all bout, development of saving with the intention of preserving or increasing their value.
The primary objectives of an investment is:
o To earn highest rate of return.
o To ensure utmost safety of capital.
The secondary objective maybe:
o Growth of capital
o Liquidity.
o Tax savings.
In the search of higher return, the investor finds many methods or investment tools for making money. They may be shares, debentures, bonds, real estate, gold, precious stones, commodities, mutual funds etc. they offer different rates of returns but also at proportionate risk. We will now take a look at investment opportunities and some of their unique characteristics. This will be followed by a comparison of all of them on the basis criteria crucial for investor.
2. DFIFFERENT MODES OF INVESTMENT
1. SHARES: An investor may purchase share in a company’s equity. He calculates that the company is likely to make a profit in the future and thus he will receive a return on his investment by way of dividends and bonuses. But this is not usually the reason why most investors who are into shares have bought them. The stock prices of companies fluctuate over periods of time due to various intrinsic and extrinsic factors affecting it. Simply put, the investor buys the share when price is low and sells when it is high, and the difference is profit he makes.
2. FIXED DEPOSIT: FD’s can be made into banks, private companies and other institutions. These have medium to high return depending upon the risk factor. The popularity of fixed deposits is fading out because of shutting down of many institutions, which were offering FD’s. The main advantage of fixed deposits is it serves the purpose of middle class people who prefer limited return at minimum risk.
3. DEBENTURES & BONDS: Debentures are securities sold by government and industry that raise the funds for their capital and revenue expenditure. The rate of interest and time of maturity is prefixed. On the maturity of the debenture, the investor receives his return. They are long-term securities normally with a maturity period ranging from 5-20 years. They may even be listed in the stock exchange and can be traded.
Bonds are securities similar to debentures but the difference is that the capital collected will be invested in projects for which the bond has been declared for e.g. government infrastructure bonds invest only in infrastructure development expenditures. Such securities and bonds usually offer a low return r5ate in exchange for safety and surety of return. Debentures may also be secured against the security of a particular asset, or unsecured if they are raised as a general loan.
4. GOLD, SILVER & PLATINUM: Gold is a universal investment tool. In the sense, it can be bought and sold anywhere in the world. The reason gold is considered a great investment is because it will never lose its value. Even during war and political turmoil, while all other investment tools lose valuation, gold’s value rises. This has led to many countries in the world storing much of their reserves in form of gold and silver bullion. It is such type of assets which can be liquidate anytime, anywhere, & in any currency. The gold market is very flexible and so one should liquidate the gold when rate is high and purchase when the rate drops down. But the major constraint in investment in gold, silver, & platinum is most of the people in India love to stock the gold in the form of ornaments & they do not want to part with it even they get huge return on their on their investment. It is very difficult to change the mentality of the common man to treat Gold or silver as trading asset and not as a status indicator.
5. MUTUAL FUNDS: Mutual funds have newly been cast into limelight with the booming economy. A mutual fund is a tool used by company or agency to collect investment from the public to reinvest it in any of the other investment instruments. The funds assure a certain minimum return and tempt you with the possibility of greater return if their investments prove fruitful. Since the mutual funds are managed by qualified professionals in the field and the returns are satisfactory, it attract high participation from public.
6. COMMODITIES; An upcoming investment avenue is the commodity market. Normally, it consists of huge quantities of commodities like rice, pulses, spices etc. being traded. The prices of commodities fluctuate depending on the commodity and market conditions. The investor trade in commodity market to take the advantage of the heavy price fluctuation and make his profit.
7. DIAMONDS AND OTHER PRECIOUS STONES: The value of diamonds and other precious stones can be used as an investment. Like gold and silver, the value of precious stones is also very good tool of investment and gives a very reasonable return with utmost safety and is a very good hedge against inflation. Diamonds and precious stones, along with the precious metals are considered to be safest investment.
8. GOLD BONDS: Safeguarding gold is a very difficult task and is also against national economic interest. If gold has to be bought purely for investment purposes rather than for sentimental or esteem purpose, it is wiser to purchase a gold bond. By purchasing a gold bond, the government buys and stores gold against your payment. It may be converted into gold at the time of maturity of the bond or alternatively, the government may buy back the bond at the prevalent gold rate. It may also be traded in the stock exchange. It has good liquidity.
9. ART & ANTIQUES: Art and antiques are also considered tools of investment as their value may appreciate with time but it requires expertise in the field of valuation of the artwork or antique piece.
10. LAND & HOUSE PROPERTY: Land and house property value appreciates with time and development of the surrounding area or due to discovery of resources specified to that area. The advantages are that it can also be used for self-use, have moderate return, capital growth. This is one of the most preferred avenues. The major disadvantage of investing in house property is one time investment is huge & income starts after 2/3 years of investment due to time involved in completion of construction.
11. PRIVATE LENDING: In a situation of private lending, the lender gets to choose his own rate of interest. This goes on primarily in smaller towns and villages, or when the borrower is not able to get a loan from a bank. The lender has an advantage of being able to fix his own rate of interest but this factor is balanced out by the fact that risk is very high of borrower being able to repay the loan.
12. VENTURE CAPITAL: Capital may be invested into a project that seems feasible and profitable to the investor. It is similar to equity-to-equity but there are usually no other share holder expect for the promoters.