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    Know Everything About Investment

    • 5 min read
    • Last Modified Date: March 14, 2024
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    What is Investment?

    • Investment is the process of purchasing assets that appreciate with time and yield capital gains or income payments. More broadly, investing can also mean devoting time or resources to bettering your own or other people’s lives. 
    • However, buying securities, real estate, and other valuable goods with the intention of making capital gains or generating income is known as investing in the world of finance.
    • Investment involves investing a resource, whether it’s time, effort, money, or an asset, in the present with the expectation of receiving a greater return in the future. For instance, an investor might buy a financial asset now, anticipating that it will generate income or can be sold later at a higher price for a profit.

    How does Investment work?

    • Investing is most simply defined as purchasing an asset at a discount and selling it for a profit. A capital gain is a type of return on your investment. Investing can yield returns through the sale of assets at a profit, also known as realising capital gains.
    • Appreciation is the term used to describe the increase in value of an investment between the time of purchase and sale.
    • Investing is profitable when you purchase and hold assets that yield income, in addition to gains from capital appreciation. The aim of income investing is to purchase assets that yield cash flow over time and hold onto them without selling them in order to avoid realising capital gains through asset sales.
    • For instance, many stocks pay dividends. Dividend investors hold stocks and profit from the dividend income rather than buying and selling stocks.

    How to Invest Money 

    • You must have a fundamental understanding of how to invest money before you put it into the stock market, commercial real estate or other financial ventures. Regretfully, there isn’t a universal solution in this case.
    • The method that suits you the best is the best way to invest your money. You’ll want to take your investing style, spending limit, and risk tolerance into account when determining that.

    Your Investment Style

    How much time do you want to dedicate to investing your money?

    In the investing world, there are two main approaches: active investing and passive investing. Both can effectively build wealth if you focus on long-term growth rather than short-term gains. However, your lifestyle, budget, risk tolerance, and interests may lead you to prefer one over the other.

    • Active investing requires researching and managing your investments on your own. It involves buying and selling individual stocks through an online broker. 
    • Passive investing, on the other hand, relies on a more hands-off approach. It involves investing in index funds or exchange-traded funds (ETFs) and aims to track the performance of a specific market index. 

    Your Financial Situation

    What is your Investment budget?

    You might believe that you need a substantial amount of money to begin building your investment portfolio. 

    The key thing to consider is not the starting amount but whether you are financially prepared to invest and do so consistently over time.

    Most investments, such as mutual funds, stocks, or real estate, carry some degree of risk. You never want to be in a position where you must sell off your investments for immediate cash. An emergency fund is your safety net to avoid such scenarios.

    Your Risk Appetite

    What is your tolerance for financial risk?

    Investments come with varying levels of risk and potential returns. It is essential to understand that higher-risk investments often offer the potential for higher returns.

    Striking a balance between maximizing your returns and managing a level of risk that you are comfortable with is crucial.

    Choosing Investments

    How do you determine where to invest your money?

    • Deciding where to invest your money can be challenging, and there is no one-size-fits-all answer. The best investment choice depends on your specific investment goals. 
    • However, with the guidance provided earlier, you should be better equipped to make informed decisions about where to allocate your investments.

    Where to Invest Money  

    The best way to invest money depends on your financial situation and goals. The top investment choices that allow you to build a diversified portfolio to achieve your various financial objectives are listed below:

    Investment OptionWhy Invest?Maturity PeriodTax Benefits
    Unit Linked Insurance Plan (ULIP)ULIPs offer insurance coverage along with excellent investment opportunities. They provide benefits like goal safety, multi-fund allocation, and automated portfolio management. These plans are suitable for long-term investment goals.5 years+EEE Investment
    Pension plansPension plans are ideal for retirement goals. You can build up a significant sum by investing a certain amount over time. At retirement, these plans allow you to generate regular income through monthly pensions.Up to the age of 55/60EET (interest not taxed, pension income taxed)
    Fixed Deposits (FDs)FDs are perfect for short-term parking of funds, emergency funds, and mid-term safe deposits. They offer high liquidity, especially for internet banking users.7 days to 10 yearsFully Taxable
    Public Provident Fund (PPF)PPF is a safe long-term investment option that offers attractive interest rates and returns on investment. The interest earned and returns are not taxable under Income Tax.15 years+EEE Investment
    National Savings Certificate (NSC)NSC is a safe investment option with a fixed rate of return. There is no limit on investment, and no TDS is deducted. Interest accruals do not attract tax until maturity.5 yearsETT Investment (accrued interest reinvested)
    Mutual FundsMutual funds enable you to diversify your investments across equity, debt, or mixed portfolios, helping to minimize risk. You can invest small sums regularly through Systematic Investment Plans (SIP).1 day to no limitFully Taxable
    Real EstateReal estate is considered a lifelong investment option that can build a legacy and provide inflation-adjusted income. It can also offer tax benefits for residential properties purchased or constructed with a loan.3 years+Taxable

    How to calculate return on investment 

    To calculate the return on an investment, you can use the Return on Investment (ROI) formula. ROI helps you assess the profitability of your investments and choose the best option among various investment opportunities.

     By considering your financial goals and risk tolerance, you can evaluate the investment. It’s also essential to factor in any hidden charges that may impact your returns. 

    ROI is typically expressed as a percentage and serves as a financial ratio that compares the benefits of an investment with its costs. 

    The formula for calculating ROI is: ROI = (Net Profit / Cost of Investment) * 100

    This calculation allows you to determine the profitability of your investments as an investor. 

    For instance, if you invest in mutual funds, ROI represents the gain from your mutual fund schemes. ROI can be positive or negative, indicating whether you’re making a profit or experiencing a loss on your investment. When selecting an investment, it’s important to consider options that offer the maximum return over a specific period.

    Where to invest money in India

     When it comes to investing money in India, there are various options you can choose from, depending on your investment goals, risk tolerance, and financial situation.

    Investing in Low-Risk Options

    Low-risk investments are ideal for risk-averse investors who prioritize stability and guaranteed returns. These options, such as Fixed Deposits, Public Provident Fund (PPF), and Sukanya Samriddhi Yojana, offer minimal or zero risk while providing reliable and steady returns.

    Exploring Medium-Risk Investments

    Investors looking for a balanced portfolio can consider medium-risk investments. Although these options carry slightly more risk than low-risk investments, they still offer a reasonable balance between risk and reward. Debt Funds, Corporate Bonds, and Government Bonds are examples of medium-risk investments that provide a potentially higher return.

    Considering High-Risk Investments

    For investors who are willing to take on higher levels of risk in exchange for potentially higher returns, high-risk investments are available. These investments are typically market-linked and come with volatility and uncertainty. Stocks, Mutual Funds, and Unit Linked Insurance Plans (ULIPs) fall under this category, offering the potential for significant returns but with increased risk.

    Where to invest

    You can invest in various investment vehicles like fractional ownership real estate, stock, FD, etc, according to your specific needs.

    But, if you are looking for the best way to invest and earn high returns, commercial real estate structured debt is the best.

    By utilizing alternative investment platforms like Assetmonk, investors can achieve a remarkable 17 percent guaranteed Internal Rate of Return (IRR). Additionally, investors can take advantage of potential tax savings of up to Rs. 50k.

    How to invest 25 lakhs for monthly income

    If you want to invest 25 lakhs for monthly income, consider investing it in Fractional Ownership Commercial Real Estate. 

    These investments offer the advantage of being fixed-income products, meaning they provide investors with regular fixed returns, similar to receiving scheduled interest payments. 

    With just moderate risk, these investments also come with the added benefit of an assured Internal Rate of Return (IRR). 

    Additionally, this opportunity enables you to diversify your investment portfolio by gaining exposure to the real estate market, which often shows minimal correlation with the performance of traditional asset classes such as stocks and bonds.

    What is Investment Management

    • Investment management involves the strategic process of making informed decisions regarding investments. This includes conducting research, selecting, and monitoring a diverse portfolio of assets tailored to align with an investor’s objectives, risk tolerance, and investment timelines. 
    • It covers a broad spectrum of investment opportunities ranging from stocks and bonds to real estate and various asset classes, catering to the wealth-building needs of individuals and institutions.
    • Accounting for factors such as liquidity, market conditions, tax implications, and more, investment managers offer expert guidance on optimizing investment strategies for maximum returns.
    • Whether you are an individual seeking financial advice or an institutional investor in need of professional insights, investment management can assist in maximizing the potential of your capital both now and in the future.
    • It is essential to recognise that investment management success is accompanied by inherent risks, underscoring the significance of seeking advice from a qualified financial advisor prior to making any big financial decisions.

    What is Portfolio Investment?

    • You must have heard the saying, don’t put all your eggs in one basket. This is what portfolio investment does.
    • Portfolio investment refers to spreading out your allocation of funds for investment across a range of investment opportunities. These opportunities include assets such as stocks, bonds, real estate, commodities, structured debt, and so on.
    • Essentially, portfolio investment is like assembling a cricket team, with different players specialising in different skills. You are spreading out your investments to diversify your portfolio and mitigate risk.
    • It helps investors ride out market fluctuations and economic downturns because when one asset underperforms, you can always rely on another investment to come through with returns.
    • So whether you like to invest in stocks or real estate, it is always beneficial to balance out your portfolio investments, and build a well-rounded & diversified portfolio.

    Which is the Best Investment Plan?

    The best investment plan is one that suits YOUR particular financial goals, risk tolerance, time horizon of investment, portfolio, and a number of other personal factors. There’s no one shoe that fits all answers to this question.

    But, like portfolio investment, the best investment plan is one which covers a number of traditional and alternative investments, such as real estate or fractional ownership, and spreads money across different assets to mitigate risk.

    Here are a number of traditional and alternative investment plans, with their expected returns:

    Investment TypeMinimum Investment AmountDuration/Maturity PeriodExpected Returns
    StocksLowLong-term7%-10% (historical average)
    BondsVariesShort to Long-term3%-6% (depending on bond type and duration)
    Real Estate (REITs)VariesLong-term8%-12% (historical average)
    Mutual FundsLowVaries5%-8% (depending on fund type and market conditions)
    Exchange-Traded Funds (ETFs)VariesVaries5%-8% (depending on ETF composition and market conditions)
    Savings AccountsVariesShort-term0.5%-2% (low-risk, low-return)
    Certificate of Deposit (CDs)VariesShort to Medium-term1%-3% (depending on CD term and market conditions)
    Peer-to-Peer LendingVariesShort to Medium-term5%-10% (depending on borrower credit risk)
    Venture CapitalHighLong-term20%+ (high risk, high potential return)
    Private EquityHighLong-term15%-25% (high risk, high potential return)
    CryptocurrencyVariesShort to Long-termHighly volatile, potential for high returns but also high risk
    Fractional OwnershipMedium to HighVaries10-16% (historical average)
    Commercial Real EstateMedium to HighLong-term8%-12% (historical average)
    Structured DebtVariesShort to Long-term4%-8% (depending on structure and risk)

    What is Real Estate Investment?

    Real estate investing includes purchasing, owning, or managing properties, that provide some sort of income or capital appreciation over time. Real estate investment are alternative investments. Why, you might ask.

    Well, it’s because unlike traditional investments where you invest in stocks and bonds which are intangible financial instruments, real estate investing involves investing in real, tangible assets. This could be commercial real estate (office buildings, retail spaces), residential properties (houses, apartment complexes), warehouses, luxury homes, and so on.

    The goal of real estate investing is owning a piece of property with the aim of making a profit. Real estate investment can provide several advantages, including regular rental income, potential tax breaks, portfolio diversification, and the possibility of long-term capital appreciation.

    Here are a number of ways you can invest in real estate:

    Direct Ownership

    ·        Purchase properties outright.

    ·        Generate income through rental payments.

    ·        Potential for capital appreciation upon resale.

    Real Estate Investment Trusts (REITs)

    ·        Invest in shares of companies that own and manage income-producing properties.

    ·        Provides diversification and liquidity.

    ·        May offer regular dividend payments.

    Fractional Ownership

    ·        Collaborate with other investors to collectively own a portion of a property.

    ·        Lower investment barriers and access to higher-value properties.

    ·        Share in rental income and potential appreciation.

    Real Estate Crowdfunding

    ·        Invest in real estate projects with relatively small amounts of capital.

    ·        Access to a variety of properties and projects.

    ·        Potential for passive income or capital gains.

    Real Estate Mutual Funds and ETFs

    ·        Invest in mutual funds or exchange-traded funds (ETFs) that hold portfolios of real estate assets.

    ·        Provides diversification across various properties and regions.

    ·        Managed by professionals, offering convenience for investors.

    Where to Invest 10 lakhs?

    If you have 10 lakhs, and you’re wondering where to invest 10 lakhs, here are some possible investment options for you, including traditional and alternative assessments:

     Consider low-risk options such as fixed deposits or government bonds if you want to earn consistent stable, albeit a little low returns over a set period of time.

    Real Estate: Investing in real estate has been historically the best choice to earn rental income and capital gains. There are a number of ways of real estate investment, these include outright owning a property, or investing in fractional ownership or REITs, or even real estate syndication.

    Fractional Ownership of Commercial Real Estate: Fractional ownership of commercial real estate allows you to own a portion of commercial properties such as office buildings, retail spaces, or warehouses.

    This is done by pooling in your money with other investors, and allows you to invest in high value properties with lower capital requirements, while also benefitting from rental income and property appreciation. The Fractional ownership platform or FOP, such as Assetmonk, takes over the property maintenance and duties leaving you free to reap your investment gains.

    Mutual Funds: Depending on your risk tolerance and investment horizon, consider a combination of equity and debt mutual funds. Mutual funds provide diversification and are managed professionally.

    Structured Debt: Investigate structured debt products, which provide tailored investment solutions with potentially higher returns than traditional debt instruments.

    Examples of structured debt include: Collateralized Debt Obligations (CDOs), Asset-backed securities (ABS), or structured notes.

    Structured debt may take the form of collateralized debt obligations (CDOs), asset-backed securities (ABS), or structured notes.

    Where to invest lump sum amount?

    Real Estate: Explore opportunities to invest in real estate properties or real estate investment trusts (REITs) for potential rental income and capital appreciation.

    Fractional ownership platforms such as Assetmonk allow you to invest in commercial properties with lower capital requirements.

    Which company is best for investment?

    There is no one “best company for investment.” Finding a good company to invest in involves a lot of research.

    The key factor here is what YOU think, and the company you have faith in to provide long term returns over a period of time, surviving market down times.

    Here are some factors you can consider while evaluating the company best for you for investment:

    Financial Performance: Cash flow, financial health, profitability, revenue growth, and so on.

    Industry Image: How well the company is perceived in the industry it belongs to.

    Market Position: What is the place of the company in its market, and whether there are any competitors that might take over soon.

    Long Term Outlook: Whether the company’s business model is sustainable in the long term.

    These are some factors you can use to figure out which company is best for investment, for you.

    Which investment is best in India?

    The best investment in India depends on what is the best investment for you. Each investment option or model, whether traditional or alternative investment, has its own set of advantages and risks.

    Diversification across multiple asset classes can help you mitigate risks and optimise returns.

    Still, here are some of the most popular Indian investments:

    Equities

    Real Estate

    Mutual Funds

    Why is Investment important?

    Why is investment important? Well, if you want to earn more than the inflation rate, accumulate wealth and save up for retirement, family planning, or even health emergencies, it is crucial to have some sort of financial stability.

    Investment, if done right, achieves exactly that. It provides you with passive income streams, wealth generation, and savings so you can plan for the future, keeping you and your family in mind.

    By investing wisely, we can ensure financial stability, increase our net worth, and actualise our aspirations, whether they include buying our dream house, or starting our own business. Investing helps us get there, faster.

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