By: Aparajita Dasgupta Gurleen Dua Rahul Agrawal

INVESTMENT, INTEREST RATES AND MEC

Changes in interest rates should have an effect on the level of planned investment undertaken by private sector businesses in the economy. Investments in the economy are inversely proportional to the interest rate. The relationship between the two variables is represented by the marginal efficiency of capital investment (MEC) curve. A fall in the rate of interest from R1 to R2 causes an expansion of planned investment.

How will the rate cut affect you as an investor and a borrower? We reached out to experts to analyse how lower interest rates will impact your investments . Long-term debt funds: If interest rates fall, these funds will witness a more pronounced capital appreciation. Tax-free bonds: Tax-free bonds do not offer any tax deduction to investors, but the interest is tax free , which makes them very attractive for those in the higher tax slabs of 20-30 %. Gilt funds: gilt funds are likely to offer the best rewards. These schemes invest in government securities (or gilts).
SRC:- TOI Bureau,2013

A SUNK COST is an investment in an asset with no alternative use and no opportunity cost, also referred to as specific asset. Many investors dont consider a poorly performing investment a failure until they sell the stock and realize the loss, and as a result investors are much more likely to sell winning stocks than they are losing stocks. Investors fall victim to the sunk cost fallacy when they allow the purchase price of a stock to dictate when the stock is sold. The tendency of investors to sell winning stocks too early and hold onto losing stocks too long has been well documented.

$1.2 billion is planned to be invested in other discoveries in the block, he said. The company will invest $747 million in augmenting production from D1&D3 and MA fields by putting up booster compressor and repair work at the closed wells.

Besides $6.451 billion, another $6.151 billion is expected to be spent as operating expenses, he said.
These investments were besides the $7.572 billion the company has already sunk in development of D1&D3 and MA fields, $1.261 billion of operating expenses and $1.094 billion in exploring for oil and gas in the block.
SRC:- RIL,ET- Jul 21, 2013

"There are many problems in the economy and in the markets, certainly," Mr. Kelly said. Short-term losses could easily be on the way, and they could be painful. "But the answer for a long-term investor isn't to avoid risk," he said. "It is to be extremely diversified and to invest in equities. You're likely to do much better that way than if you stay out of the markets."
SRC:- New York Times, Published: Sunday, 1 Sep 2013

The Determinants of Investment

Keynes saw investment as the desire to create, which is motivated by optimism or what Keynes called the "animal spirits" of the entrepreneur. In Keynesian terms, optimism about companies meant that "animal spirits" were strong and investment was high. This raised the level of output and caused a powerful economic expansion.

Investment expenditure in an economy can be of : 1) Business Investment. 2) Residential Investment. 3) Government Investment.

Tata Motors will go ahead with its planned investment of Rs 3,000 crore in the current financial year despite a economic slowdown to support growth in future. "There are always things to be hopeful about because they are in the automobile business, this is a passionate business and things like this don't deter us. These actually energise us to think about new products, new initiatives to take to the market. "We expect to see a boom as we have always seen in this country as far as festive season is concerned. But, looking at the trends it will lesser than last year"
SRC:- TATA MOTORS, PTI | Sep 4, 2013

According to the study, while 92 per cent of working women claim to be involved in the investment decision-making process, 70 per cent of these women are actually joint decision makers and a majority of these (52 per cent) are only informed about the investment decisions which have already been made. When it comes to trusting various financial institutions, it was observed that women trust nationalised banks (88 per cent) almost twice as much as they trust private banks (43 per cent) and foreign banks (24 per cent), it added.

SRC:- PTI Jul 7, 2013

The government plans to take some "hard decisions" to trim wasteful expenditure and curb the import of inessential items to deal with the stressed economic situation, although there will be no hasty increase in petrol and diesel prices.

"When you are facing a gloomy situation, wasteful expenditure has to be curbed... you call it cut in non-plan expenditure...while we must continue to spend and continue to find money for productive investment," he said.

SRC:- PTI | Sep 7, 2013

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