A detailed
article explaining the concepts of how to make a decision before making any
investment .............
Read this
article to make a clear understanding about various steps which has to be taken
before investment in any kind of products.
We often see
everywhere like, News Papers,Media,Banners, that invest in that Mutual
Fund,Life Insurance Products,Bank FDs,PPF,Shares-Debentures,Gold ETF,Real Estate
Projects etc,with a promise of some special and attractive features or returns
with it.
But the most
important question is that “Whom to select?, or which is Better?”,
All kind
of asset holds
·
Various
positive and negative aspects,
·
Lock
in period,
·
Risk
involved in it,
·
Liquidity
Factor,
·
Capital
Preservation so on…..
So, It’s a challenge
to decide which is a better option available to park our funds.
Main point to
keep in our mind is that,Every asset or product is unique and good in itself,
but the problem is that,it may be good for one person or company, not neccesarily
suitable for others.
So to decide a
better investment opportunity we have to look upon many number of factors to
come on a conclusion.
Ø Basic Requirment Or
Need Based : - An important
Factor in deciding a unique investment product can be followed by several
questions like,
·
For
What Am I Investing In That?,
·
What
expectation u have with that investment?
·
For
what Goals we are investing in it namely,Better Future,Regular Income,Short
Term Money Parking,etc.
One should also check his financial
status before investing in any thing,
·
Whether
it fulfills your requirment or not?,
·
Whether
It Suits you?,
·
Whether
It Matches with your Time Horizon?
Means, suppose one need money after
5-6 month time, its better to invest funds in saving bank ,or other liquid
products available in market. Also not to be fooled by wrong promises or fake
attraction.
Ø Risk Reward Aspects :-
Another aspect which is a crucial factor for decide is Risk vs Return
factor. The fundamental principal is that “the lesser the risk involved in any product,
lesser will be the return” and vice versa. Means if we invest in Equity, its
return will be high and also risk involved in it, however,
If we invest
in Debt Instruments Return will be lower as compare to Equity and also the
Risk.
The following graph will make it easy to
understand
As the above
graph indicates left side is Return and downside is the Risk or Standard
Deviation, as it can be observe via above chart, Lesser the Return Lesser the
Risk and Higher the Returns,Higher will be Risk,in other words,as we started
moving from low return to high returns,we also move our fund from low risk to
high risk
.
Ø Quality Of Products
or Safety
:- For deciding the good investment
we have to see, the best among a series of product on the sake of safety. For
this we should keep in mind that “Everything that Glitters is not Gold”. It
means we should choose things wisely not emotionally, or on the basis of any
attractions.
The thing
which we want to invest should be unique in quality, here quality means the
Benchmark or Standard, for financial products there are various institution who
do credit ranking of it, like ICRA,Crisil,Care,Standard n Poors,Fitch etc.
their business is to do resaerch continuously and give a result on the basis of
there various criterias.
They provide
there results in signs like AAA+,AA+,B1 or any other form,which shows the
creditibility of a firm. so its better to keep in mind there rating to come on
a perfect decision.
Ø Goal or Target :- Another important factor before
deciding about any produc,People mostly unaware about their target or goals.
A Financial
Planner ask some specific set of questions based on their financial
situations,so that he can decide the goals client wants to achieve in
future.Its a Psychological concept to understand one’s goals,based on his
financial circumstances,family size,living standards,no.of dependants,future
prospects of increase in salary or business.
Some Basic
Goals of an individual are Child Education,Buying Home,retirement
Planning,Children’s Marriage,Foreign Travel etc.The first thing s decide goals
client wants to achieve in future,second one is to categorise its
priorities,means which is most important.So Goal is also an important thing for
right invetement selection.
Ø Liquidity :- Liquidity means how easily an
investments can be changed in cash,whenever need and without any or minor decrease
in its value. The Saving Bank Deposit is termed as most liquid assets, there
are other assets also which is termed as liquid like G-sec,Bonds,Debt Mutual
Funds etc.
We should
select That products which can be
transformed in cash as soon as we need, we do not have to wait for that. like
if we invested in Life Insurance we may get Surrender value but it will not be
prompt and easy,also it will be in much lesser value than original payment.So,one
should choose liquid product for investment,if his time horizon is less than 12
month.
As a
conclusion we can say that if anyone choose a product for investment after
taking into consideration, Needs,
·
Risk-Return,
·
Safety,
·
As
per his Goals
·
Liquidity
aspects,
Than It can be
terme as right investment decision one has made for his bright future.also he
may live life with peace,without any worry.
Thnks n
Regards,
Ravi Prakash
Keshari (CFP)
Varanasi.
