We all have heard the word “investment” right? Obviously yes. We invest some part of earn money in various securities to get a better return on our money that we investing in the market. So question that arises in mind is that why we actually invest money in some securities or any other investment form? why can’t we just store in a cupboard in our house itself as kids used to do by saving their money in piggy banks? we just cannot store it because it may help us keep that money safe but will not provide any opportunity to grow that money further. One question which I asked at the start that why we actually invest? The answer is simple we invest to get some return on our surplus or part of earning to meet a future contingency or to satisfy our needs which may be financial and non-financial. So this article will give you slightest view about the investment like what it is? How does it work? And many more things related to it.
Let’s first define investment as per my point of view, although word investment will be interpreted in many different ways by different people.
“Investment is a commitment of surplus fund or some saves part of earn money made in expectation of getting some positive return on it”.
Let’s discuss its characteristics:-
- It is a part of saving that flows into financial markets either directly or through various investment institutions.
- Investment is done to derive some future benefits over a point of time.
- Investment is always associated with risk .higher the risk, higher the return. So investors need to evaluate their risk tolerance before investing.
- Investment is neither a speculation nor a gambling .sometime we mistook it for a quick and rich phenomenon. But in reality it’s not that, it is taken after analyzing meticulously various aspects of investment opportunities .we make rational decisions.
Now discussing ways of investment:-
1) Direct investment:-
In this, investors himself employ their funds by his own choice and make decisions of their own. These investments are less risky and have fixed rate of return like making the investment in fixed deposits, national saving certificate, government bonds etc.
2) Indirect investment:-
In this type of mode, investors hand over their respective money to some instructions who have expertise like UTI (Unit trust of India) or LIC. These institutions make an investment on the behalf of the investors like in provident fund, mutual funds etc.
Question popup in my mind where we can invest our money? So here are different alternatives or instruments available which are as follows:-
Financial assets: e.g. shares, bonds, debenture etc.
Real assets: e.g. residential property, commercial property etc.
Commodity assets: e.g. sugar, grains, vegetables etc.
As we know investment is not a single step activity there are various steps that we need to keep in mind while investing to get satisfactory return, which is as follows:-
Make the proper investment plan like how much fund is available to you? How much you required to invest? Determining the objective of investment, where to be invested? , these need to be analyzed carefully to make the successful goal.
Economy, industry and company analysis should be undertaken by following some approaches or models like financial and non-financial. After doing a comparative study, the particular company should be chosen.
After making company’s selection, their securities need to be evaluated by calculating its intrinsic value. It’s always advisable invests only when intrinsic value is less than market value.
After evaluating securities on the basis of its risk, return, the fund is being employed in most favorable security. While investing, investors need to keep in mind that never invest your whole money in one security, always diversify it because it will reduce your risk.
Always evaluate your investment after a particular point of time on the basis of its return. So that you can revise it if a particular investment is not doing well.
We all want our money to be safe. So to make sound investments keep these points in your mind:
Liquidity which means getting your investment readily converted into cash without any delay which enables you to quickly move out from penny stock to growth stock.
The regularity of income: – we make an investment for two reasons firstly, growth in the form of capital appreciation.secondly, interest income and dividend income. So consider these before investing.
It’s always advisable that invest in those securities which save tax that to be paid on account of income, so carefully analyze the tax implications.
Your investment should be within the legal provisions to avoid any future problems.
So we can conclude that investment is never risk-free. It will always have risk may be minor but will exist. So if you are unable to make sound decisions or judgment regarding investment, feel free to seek advice from market experts, researchers etc. instead of doing DIY (do it yourself)…
Hope you people find this article useful… J
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