Ever thought of how this small word Investment has turned to a big terminology in the financial world? The whole financial world revolves around this word. On a day-to-day basis, we hear this make so-and-so investment and earn suitable return. Let’s try to understand the concept of Investing.
Investment in its simplest form is basically to put or to devote something in expectation of something in future. Investment can be any form, this can be investment of time, investment of money, and so on. For example, when we say parents invest their time and money on their kids, so what does this actually mean? This simply implies to parents who make the investment in terms of money by providing their kids quality education which can help them in future to establish and earn successfully and Investment of time in making them a good human being in future. So expecting something in return in future by making some contribution at present is what actually Investing is all about.
In the financial world, investing is all about investment of money. Investing money in suitable financial vehicles from the list of all available financial avenues and expecting reasonable return in future is termed as Investment. Investment core lies with the expectation of return which can be in the form of income or appreciation of price. With every investment, there comes a risk along with return, so risk and return in any investment go hand in hand. In simple terms, low risk investment provides low returns and high risk investment gives higher returns.
Based on the risk profile, the financial spectrum has varied products that ranges from bonds and certificate of deposits at the lower end of the spectrum with low risk profile to stocks at riskier profile and derivatives at the riskiest and at the higher end of the financial spectrum.
The first answer that comes from common set of investors, when asked about what particular investment vehicles are considered while making investments? The investments are mostly in safer avenues, such as bonds or a combination of stocks, bonds, and cash in their investment portfolios, some using individual securities while others use exchange-traded funds or mutual funds to set up their asset allocations.
However, stock market is subjected to volatility and this impacts the price levels of the stocks and subsequently the return on investments. As volatile as the stock market can be, many investors have been looking into safer ways to invest their money. So, alternative investments have become increasingly popular. Many investors are turning towards alternative investment vehicles and focusing on improving their returns. However, investments under alternative investments are typically open only to high net worth individuals (HNIs) and institutional investors, such as hedge funds and private equity funds. Alternative investments can give you greater diversification and improve your risk-reward profile, but they also require getting expertise to understand them.
Avenues, such as art, antiques, hedge funds, Venture Capital private equity funds, and P2P lending, Real estate comes under the category of alternative investments. Each of these alternative investments has a different ticket size, risk, mode of investing, and regulatory framework.
Some of the alternative investments are as under:
Alternative investment is a universe in itself. With diversification as its underlying element, it is gaining popularity among retail investors as well. It is no more the arena of the wealthy investors only. Investing hard earned money on any type financial asset requires proper study of that particular vehicle, along with it one should consider few points like risk involved, return expected and does that particular investment meets up with the particular goal for which that investment is made for? While this asset class is sure to provide diversification, it does require expertise in selection and sound judgement-backed investment. Without thorough research or study of market trends, investing in them can be a risky bet.
Investing hard earned money on any type financial asset requires proper study of that particular vehicle, along with it one should consider few points like risk involved, return expected, and does that particular investment meets up with the particular goal for which that investment is made for? If your investment in particular financial vehicle satisfies the required points, then it’s worth making any investment and earn significant return in future.
The concept of auspicious time is not only considered for performing rituals but also for investments. The concept is nothing new, but a very old concept that has been followed till date. In stock markets, we have an auspicious time to invest in equity market for healthy returns over a period of time called as Muhurat Trading.
Indian equity markets have encountered a massive correction this year till date. A double digit correction from record high hit in August has taken out many investors out of this market. For some, it resulted in sleepless nights as portfolios were completely thrashed into the red zone from the green zone in just a span of a few months. Benchmark indices were pushed below the crucial support levels in the last two months. Every time, a new low was made; we have this concept that now the bottom is done and an upside is soon to begin. But at the current juncture, it looks like we have hit a bottom at 10000 on the Nifty, and the only way for market to go is UP.
Markets remained highly volatile for both equity and debt market across the world in 2018 till date. The high volatility was primarily on account of a looming trade war between the U.S. and China coupled with a change in interest rate policy across major central banks in developed countries. Indian equity market fell about 10% from its peak while many stocks eroded wealth by more than 50% in some cases. The current conditions in markets are ideal for investors to reshuffle their portfolio and what could be a better time to change the allocation than Diwali. Volatility will prevail in the markets for an extended period; investors looking forward to build a portfolio should approach with caution and use the bottom-up strategy for the allocation.
At an aggregate level, mostly large caps offer a better risk-return profile; however, at some occasions individual stock among small and mid-caps look better. The long term strategy to stay in the game of investment is to always look for companies with strong business model. Quality matters in the long term that can stand against all volatility. With elections due in 2019, highly volatile sessions will occur. Sensex is targeted to touch the mark of 45000 by the end of the year 2019.
Our recommendation is to construct your portfolio with an allocation to varied asset classes based on investment objective and risk appetite in consideration. You should always stick to your asset allocation plan and if you have more funds to invest, do so in the same pattern; so if equity has fallen, you should invest more in equity to maintain asset allocation ratios.
For example, If you have ₹ 100000 in hand and you are in the age bracket of 30-40 years, a reshuffle can be looked at after the recent fall in markets. For long-term investors, the following should be practiced: