What
is Investment?
Investment
is referred to as the concept of deferred consumption, which might comprise of
purchasing an asset, rendering a loan, keeping the saved funds in a bank
account such that it might generate lucrative returns in the future. The
options of investments are huge; all of them having different risk-reward trade
off. This concludes that the investment industry is really broad and that is
why understanding the core concepts of investments and accordingly analyzing
them is essential. After thorough understanding of the investment industry, can
an investor create and manage his own investment portfolio such that the
returns are maximized with the least risk exposure.
Types
of Investments in the investment industry
As
stated earlier, the investment industry is huge; therefore the types of
investments are also varied. Different types of investments are: Cash
investments: Cash investments comprise of savings bank accounts,
certificates of deposit (CDs) and treasury bills (TBs). All these types of
investments render a low interest rate and prove to be quite risky during times
of inflation.
Debt securities: This type of investment gives returns in the form of fixed periodic payments and the fixed capital appreciate at maturity. This is safe bait for the investors in the investment industry and has always proved to be the risk free investment tool. Though, it is generally low in risks, the returns are also lower than the other peer securities.
Stocks: Investors can also buy stocks (equities) from the secondary markets and be a part of any business corporates that are listed in the bourses. By this way, one can become the part of the profits that the company generates. But one should remember that stocks are generally more volatile and carries more risk than bonds.
Mutual funds: They are usually a collection of stocks and bonds that a fund manager selects for an investor such that the returns are maximum. The investor does not have to track the investment, be it a bond, stock- or index-based mutual funds.
Derivatives: Derivatives are financial contracts, whose value is derived from the value of the underlying assets like equities, commodities and bonds. They can take the form of futures, options and swaps. Investors choose derivatives as they are used to minimize the risk of loss that result from variations in the underlying asset values.
Commodities: The items that are traded on the commodities market are agricultural and industrial commodities and they need to be standardized. Commodities trading have always been giving high returns and thus they are the riskiest of all investment options. One, who trades in commodities, requires specialized knowledge and analytical capabilities.
Real estate: Investing in real estate has to be a long term affair. Funds get hooked into the real estate sector for a considerable time period.
The investment industry in India - how is it going? India's equity market has doubled since March 2009, with ADRs like Dr. Reddy's Laboratories and Tata Motors only getting doubled and tripled. So, do we say that the Indian investment industry is overheated at the moment or may we infer that the stocks are fairly valued?
Warren Buffett has always mentioned that investment in India should always be a long-term story - as the industry has been growing from an emerging market to a developed one. The next 10 years in India will surely give good returns.
India's GDP growth would be around 6.5% to 7% in 2010. The sustainable growth rate of India would however hover around 7%. Before becoming a mature economy, India has another 20 to 40 years to spare.
Where
to invest in India?
The
financial sector in India, specifically the banking stocks have been doing well
now. The health of the Indian banks seems to be strong and a lot of growth is
expected in the organic frontier. The IT stocks too have been faring well and
that is why it is advisable that the investors invest in stocks of quality
companies that have a good earnings track record. The other choice of stocks
has been the consumer goods stocks, auto stocks, agriculture-related stocks.
Some of the favorite scrips that investors can look forward to are Infosys
Technologies, HDFC Bank, ICICI Bank.
Challenges
of Indian Investment industry
The
investing story in India has not been always that smooth. Pitfalls are sure to
co-exist. The main restraint on India's growth now happens to be its
infrastructure. On the other hand, infrastructure is India's biggest
opportunity as well. The fiscal deficit of India also poses a big threat to the
investment industry in India. For an emerging economy like India, it is
recommended that an investor always balances the unique risks against the
potential for high long-term growth. Accordingly the decision for investment
should be made.
Of late, the Indian economy is turning out to be extremely conducive in terms of domestic and foreign investments. India Investments has been the major propelling force towards India's attainment of self-sustained growth by way of rapid industrialization. The pioneers of the investment industry has been Foreign Direct Investment (FDI) and Investments made by NRIs.
Foreign Direct Investments in India has been gearing up momentum every passing day. So, to view an economy which is entirely open to the global markets, the investment industry in India should be groomed in a manner that the maximum returns are achieved. It is advisable that the investment industry's potential should neither be overestimated nor underestimated. We should know how to deal with the complexities of the investment industry and grow along with it.