Investment Options and Factors to Consider

Jayant Makkar

One of the reasons why India is a little behind USA is because the citizens of USA are taught the culture of savings and investments from their childhood. Investing is also a part of their school curriculum which manifests in them habit of investing. India being a developing country still gives a tough competition to developed countries like US but it lacks somewhere when it comes to investing habits. Of a population of 1.2 billion only around 18% invest in stock markets in India while in US it is over 50%. This shows a weak investment culture in India.

This article is my little effort to help gain financial and investment literacy among us i.e. the youth of India.

WHAT IS INVESTMENT?

If I define investment in economic sense, an investment is a flow variable or an injection into the economy which causes an expansion in the process of production (or the process of income generation) in the economy.In financial terms, an investment is a monetary asset purchased with the expectation of earning certain income like dividend/interest in the future or capital appreciation. In simple terms, the hard money that you earn is partly saved for meeting future expenses. These future expenses are met by the future income that you earn on the investment you make. This is called Investment.

WHY INVEST?

Investing helps you to earn income on your idle resources i.e. it helps you generate certain sum of money for a specific goal in life but its importance is best known at the time of any uncertainty in the future.

WHEN TO START INVESTING?

“It is never too late to what you might have been” (by George Eliot) is not quite true when we look it from investment point of view. Why I am saying this is because the sooner you start, the more time you give your investments to grow (power of compounding is the biggest power). Investing regularly also helps in giving miraculous returns on your investments and remember, patience always pays off, be a long term investor.

WHAT ARE THE FACTORS TO BE CONSIDERED BEFORE INVESTING?

Before making any investment, one must ensure the following:

• Offer documents- Read and understand the offer documents carefully before investing. You guys must have heard this sentence in supersonic speed on television or on radio but is of much importance when it comes to investing.
• Term of your investment- By term I mean the duration of your investments. Try to invest for a longer period of time (compounding effect).
• Investment Goal- Expecting youth to be majority readers of this article, I understand our needs. Buying an iPhone or a laptop might be your goal. This can be your investment goal (a Mutual Fund can help you fulfill this goal).
• Your risk bearing potential- Understanding your risk bearing becomes a crucial factor which influences investment decision making.
• Ask questions- He who asks is a fool for five minutes, but he who does not ask remains a fool forever. Seek all clarifications and clear all your doubts.
• Analysis- Do your homework, do not fully trust your intermediary.
• Investible amount- Carefully examine how much amount you can spare out of your earnings for investments.
• Opportunities available- Compare the all investment opportunities available.

Summarized below are the investment options available based on their duration:

These are briefly defined below:

• Savings bank account: It is the most common and considered as the safest investment option. It offers low, generally 4%-6% rate of interest on your funds.
• Money market: Also known as liquid funds, are specialized type of mutual funds that invest in extremely short term fixed income instruments hence providing sufficient liquidity. Considered as better than savings account but provide lower return than FDs.
• FDs with banks: Also referred to as Term Deposits. Funds can be invested for as minimum as 7 days with no liquidity problems.
• Post office savings account: Is a low risk investment instrument which can be availed through any post office. Post office offers various products such as National Savings Certificate (NSC), National Savings Scheme (NSS), Kisan Vikas Patra(KVP), Monthly Income Scheme etc.
• Public Provident Fund: A long term investment instrument with a maturity of 15 years and interest payable is 8.8%. The minimum deposit amount is Rs 500 per annum and the upper ceiling limit is Rs 150,000 per annum.
• Mutual Funds: These are the best investment option for a person who has funds but doesn’t have time to do a proper analysis before investment. It works on the principles of a partnership. The major advantage of mutual fund is that it is manager by a team of professionals who are expert in portfolio management.
• Equity market: Considered as the best option for long term. Equity shares have offered the maximum returns only when invested for a long term. As an investment option, investing in equity shares is also perceived to have a high level of risk.
• Bonds: It is a fixed income (debt) instrument issued by central or state government, corporations and similar institutions. A bond is generally a promise to repay the principal along with interest on a specified maturity date.

THE FINAL WORD

Making money is not a very complex issue, what it requires is patience and consistency. It does not take a very intelligent brain to invest, all it takes is a little smartness and awareness about investment. Educate yourself and have a proper financial and investment literacy. Never forget, a farmer who with utmost care looks after his farms, in the same way you must look after your investments. You may face downfall, but never lose hope. Remember after every autumn, there is a spring. It is your money, make it grow.