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Investment Decision
The Investment Decision relates to the decision made by the
investors or the top level management with respect to the amount of
funds to be deployed in the investment opportunities.
Factors Influencing Investment
Decision
Mutual Funds
Mutual funds are financial instruments that are professionally
managed and that invest money on behalf of any investor, in
different securities. These mutual funds are classified into
various types based on the type of securities that they invest
in. Some of the most popular mutual fund types are balanced
funds, stock funds, open-ended funds etc. These funds are
classified based on their percentage allocation in different
securities. So, an equity fund invests purely is equity and is a
high risk high return product while a debt fund invests purely
in debt and money market instruments and is hence a low risk
low return financial product.
Fixed Deposits
As the name itself indicates, fixed deposits are financial
instruments that are one of the oldest and safest ways to save
money. These are not necessarily active investment tools, but
are rather a passive way to save and earn returns. A fixed
amount of money is kept aside with a financial institution for a
fixed number of days or months or years. In turn, interest is
earned on this money. The rate of interest differs with the
deposit tenure and also with the banking entity.
Similar to fixed deposit is the concept of recurring deposit.
However, the only point of difference in the two investment
tools is that while a lump-sum amount needs to be fixed in
case of fixed deposit, a smaller amount needs to be deposited
at regular intervals in case of a recurring deposit. Hence,
customers who do not have a large chunk of money to fix in a
single go can opt for a recurring deposit wherein money is
usually deposited monthly for a specific deposit tenure. The
rate of interest earned on recurring deposit is similar and
comparable to that earned on fixed deposit.
Real Estate
Property rates are soaring with every passing day which has
made real estate a hot investment avenue for investors.
Buying, selling and leasing of property offers substantial
returns to investors. Appreciation of property makes real
estate a good investment tool. With urbanization gaining
ground rapidly, real estate prices in certain major cities like
Mumbai, Bangalore, New Delhi, are skyrocketing. This has
made these places hot hubs for real estate investors. Most
investors take loans from banks to purchase real estate and
then lease out or sell the same property to enjoy returns
offered due to appreciation in price of the property.
Alternative Investments
Alternative Investments are those that are not regular
investments like stocks, bonds etc. These are investments
made in order to acquire jewelry, precious metals etc. which
are expected to yield returns in future. Hedge funds, some real
estate types, venture capital and derivatives also form a part
of alternative investment. Alternative investments are so
called due to their non-traditional as well as complex nature.
Also, another distinguishing feature of alternative investments
is relatively low liquidity and well as very high minimum
investment limits.
While a common investor may not access alternative
investments like hedge funds or derivatives due to their
complex nature, others like gold and real estate are available
to even the common man. Let us look into some of the most
prominent alternative investment tools known to investors.
Hedge Funds
These can be understood as a professionally managed private
investment company or partnership structure. Techniques to
manage the fund can be those that are not commonly allowed
for SEC regulated companies. Hedge funds invest in both
financial derivatives and/or publicly traded securities. These
are popular as an alternative investment tool owing to their
high leverage and high returns. However, they are
characterized by high fees as well as low liquidity. It is seen
that managers of hedge funds generally have a personal stake
in the fund.
Private Equity
Private equity is trading in shares of an operating company
that is not publicly listed and whose shares are not available
on the stock market. Institutional investors employ various
strategies to indulge in private equity trading. Private equity is
popular since it offers diversification of financial portfolio by
allowing investment in avenues that are not tightly coupled to
normal investments.
Venture Capital
Venture Capital is one of the most popular investment
strategies currently being deployed by investors in the Indian
start-up scene. The idea behind this investment strategy is to
invest substantial capital in a budding company in return for
stocks of the same. This is done with companies who are
either in their initiation phase or in their growth phase. Venture
capitalism is generally based on ideas that find substance with
the investors or any new technology that the investors feel
might take the market by storm in future.
Managed Futures
This type alternative investment involves managers using
futures also as part of their investment portfolio. Managed
futures are a great tool to offer portfolio diversification and
therefore are a great alternative to minimize risk and maximize
returns. In general, a managed futures account will have
sufficient exposure to different markets like energy,
agriculture, commodities, currency etc.
Structured Products
Structured products are alternative investment tools that
generally combine two or more financial instruments to make
a packaged investment strategy in a single product. Most
often, derivatives are combined with securities or with other
derivatives. Structured products have a fixed maturity date like
bonds. These offer a convenient strategy to implement a
complex investment strategy across various financial
products.
Collectible items
Collecting artifacts that have substantial value and those that
have historical and artistic significance is one of the most
difficult types of alternative investments. This requires
knowledge of the article that you are purchasing. Mostly,
collectibles like stamps, jewelry, boats, planes, art works etc.
tend to appreciate in value and are considered good and
profitable assets to own. The value of artifacts is generally
expected to appreciate and keep pace with inflation and hence
collectibles make a good form of alternative investment.
There are a few more alternative investment instruments
available in the financial world. However, their use is limited
since these are more complex products and are hence not
considered by the common investor. Seasoned investors and
professional investors tend to consider these alternative
investment strategies to increase wealth.
They are one of the important parts of good investment portfolios. Life insurance
is an investment for the security of life. The main objective of other investment
avenues is to earn a return but the primary objective of life insurance is to
secure our families against unfortunate event of our death. It is popular in
individuals. Other kinds of general insurances are useful for corporates. There
are different types of insurances which are as follows:
NON-MARKETABLE SECURITIES
Bank Deposits
Post Office Deposits
Company Deposits