The Buyt Desk
When planning to make an investment and managing it, you have to look into many factors and if needed take professional help too. Don’t lose your hard earned money by investing without homework.
Investment is what everyone should do to grow their wealth. Just earning money is not enough. You must smartly invest your hard earned money for a better future. Investment is when you put your money into some resource or buy some asset with an intention to earn profits. Investment can be both short term and long term. There are various resources where you can put your money with hope of good returns like bank accounts, term deposit, buying properties, buying shares in stock market, mutual funds, buying gold and many more.
Investors choose the product based on their own needs, capacity, interests, goals and time frame. Likewise there are many such factors that need to be considered before arriving on your investment plan. You need to make sure that you make the best of your money and it generates good profits but not losses. Young investors have better exposure to investment options and they make investment decisions themselves or through financial institutes or online investment planning firms. Below are top 5 factors that you need to look into to make sure you are making the best investment choices as per your requirements.
The top 5 factors to be considered while choosing your investment
Return on Investment (ROI) – ROI is the profits that you make out of the investment at the end of the investment period. ROI can be of any type may be dividends, interest earned, capital appreciation. You should calculate the affecting profit after deducting the income tax. Always remember that your net ROI after tax returns should never be below inflation rate. Higher the ROI, higher is the risk.
Investment capital – The amount you have reserved for investment also matters when you make investment choices. Though there are many options even for a small amount of money to be invested, a huge chunk of money will have better options in the market with better ROI. Good properties or leveraged products attract big investors. You can even take loans on these leveraged products that you have invested in.
Liquidity – Liquidity is something that can be accessed and used immediately. Liquid asset is the cash as it can be used immediately for your needs. You should invest in a few assets that can be converted into cash easily, maybe in a few days. In case of financial emergency, you should be able to encash it easily and quickly. A savings bank account is the most liquid investment. Property and gold can also be considered liquid assets though it may take a few days or weeks to sell it at a good price. Even shares can be considered liquid but it may not fetch a good price at the time of your needs if the market is down.
Risk appetite – Risk in investment is the probability of losing the portion or all invested money because of an unpredicted situation. The higher is the chance of good returns, the higher is the risk of loss. Either you grow to a certain height or fall from there. For example, a fixed deposit has least ROI but is highly risk free. On the other hand, shares in the stock market promise high returns but are highly risky as it is market dependent. You choose your investment based on your risk appetite. Never invest in any product by looking into your friends or family’s investment plan. Each person has a different risk appetite.
Time horizon – Time horizon is the time duration your money remains invested. Some have money with them for a short duration and have plans to use it for some other work after that duration. Even for such a short duration of a few weeks or months, this money can be invested to generate profits. Everyone has different time duration for their investment; some have a few weeks and some few years while few invest for the next generation. Based on this time duration one should choose the investment product. For example, if you have Rs.100000/- with you and you do not need it for next one year and plan to invest in a fixed deposit for a year. And suddenly you need this money 6 months after investment. Then you will lose some amount for taking it out before the locking period. So decide how long your money will remain invested before making investment plans.
