Investment Basic Criteria

 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.