Whare to invest in 2010?
First of all World of Finance wishes you all a Very Happy New Year 2010, a job well-begun is half done, like the saying goes it is our responsibility to make sure we have well defined investment plans for the new year to ensure a safe and secured future.
There is a quote “People are so worried about what they eat between Christmas and the New Year, but they really should be worried about what they eat between the New Year and Christmas”. The gap between Christmas and New Year is only 6 days but still people are more concerned about this than the remaining 360 days. Indirectly it indicates the unplanned and short sighted financial decision of people. There is no life without money; each and every aspect of human life is closely related with money. A poor financial decision can entirely break the stability of one’s societal life. World of Finance is making an effort to suggest some best investments for the year 2010. Hope it will help you to make a new beginning by having a well planned and systematic approach to investing.
Steps to be taken before making an Investment
Following are the basic steps to make your future financially safe;
- Evaluate your financial status
- Identify your financial goals
- Build up a financial plan for you
- Implement and track the plan
Evaluate your financial status
Create a basic financial check list of your income, expense, assets and liabilities this will help you to understand your current financial status. Understanding your overall income and spending habits will help you in fixing your financial goals.
Identify your financial goals
Once you evaluate your financial goals, make a list of your future financial goals. It may include buying a home, purchase of a car, children’s higher education, daughter’s marriage expenses etc. Unless and until you write them down you won't be able to imagine these cash outflows. Fixing of financial goals will help you in building up the suitable financial strategy.
Build up a financial plan for you
Financial plan depends on your financial goals. Preparing a financial plan is a one-time activity. You should know how you can meet your goals and objectives keeping in mind your present and future resources. Experts can help you in developing a financial plan.
Implement and track the plan
This is the most important step as you need to act on the plan if you want to get it going. Once if you design a financial plan you have to start implement the plan and track the same. Having a good plan and not taking any steps to implement will not help you in any respect. Mere implementation is not enough to achieve the financial goal; proper tracking is must for that.
Investments for You
Normally in the last quarter of any fiscal year, or in the first quarter of a calendar year, people will be more focused on investing in tax saving instruments. Always you should be careful while investing, generally people are concerned only about Saving Tax they are not bothered about the quality of investment they have make. It might help you to save the tax but in the long run a small saving in tax might lead to a huge loss in investment . To avoid this you should construct a portfolio based on the risk-reward matrix rather than on saving taxes. Constructing a portfolio is not a difficult task to do even a layman can manage his portfolio; all you have to do is find some time to spend on finding what is happening around us. Below given are the best invest avenues for year 2010. Creating a balanced portfolio of these investments will multiply your wealth in few years.
- Equity
- Gold
- Real Estate
- Mutual Fund
- ULIPs
Equity
Stock market is one of the most attractive platforms that help you to multiply your wealth. Which is the right time to buy stocks? Most financial experts agree that the correct time to buy stock is right now. The earlier you invest the faster you will grow. If you wait for the perfect time to invest you will only delay investment and keep yourself of potential profits. If the stock market is doing well when you enter the market, you may prefer to buy less initially as stocks will be more expensive. However, you should invest when you have money and in fact you should invest as soon as you get money. The sooner you invest the faster your investment will grow.
Advantages
- Self employed – You can be your own boss
- Geographical freedom – You can buy & sell stocks from any part of the world
- Minimal capital – You can start Investing with relatively small capital
- Unlimited potential for profit – Possibility to earn profit is very high
- Flexibility with time – You can choose when you trade and when you don’t
- Almost anyone can do it – If you are 18 you can open a trading account and begin
As we have already mentioned Equities have given returns of about 11% over inflation since 1979.
The basic risk of investing in direct equity being the investor is getting carried away by your wrong investment decisions. Buy stocks with long term focus with the help of expert advice.The investor should be clearly focused and should buy only with long term focus irrespective of whatever happens to the market in the short run.
Gold
Unlike other investment, a gold investment doesn’t require hard core. Gold investment is a long-term investment scheme with comparatively low risks. People who are willing to invest in gold have a natural advantage because the demand for gold is much more than its actual supply. Unlike any other investment gold has never given a negative return to its investors. Price of gold is generally in a continual rise. You can invest in gold in different facets, direct investment, investing in Gold ETFs ( Exchange traded Funds), investment through commodity exchanges, etc.
Benefits of gold investment
- Gold is the major requirement in jewelry industry
- Gold is durable
- Huge demand in the market
- Easy transportation
- The value of any object can be assessed against Gold.
- It appreciates in value always
Gold is the perfect hedge for inflation this statement is based on data from the year 1800 AD. Real estate and shares are two strong competitors of gold on the capital appreciation front. Real estate and shares have given returns of about 11% over inflation since 1979 (1979 was the year the index called Sensex was formed).
Gold is a very strong room for investment, compared to shares which are highly volatile. It is better to invest in gold at times when the markets are falling and when the inflation is very high. In your investment portfolio 5% of the overall investment can be considered for gold investments like bullion, Gold coins, gold ETFs, etc. Jewellery is not an investment as far as personal finance is concerned.
Real Estate
India Real Estate Investment has proven to be the highest yielding investment opportunity in the recent few years. Real Estate Investment in India is one of most successful investment avenues in the last few decades. Since the gates were opened to foreign investors Indian Real Estate industry has ever reached a peak point. This is the reason why many foreign investors are investing huge amounts of money in this sector. NRI Investments have taken a new twist and have entered the Indian real estate market. Real estate has given returns of about 11% over last 30 years.
Developments
The real estate developments in the country consist of the following:-
- Constructing houses
- Residential complexes
- Townships
- Shopping malls
- Office buildings
- IT parks
Factors responsible for the upswing in the India real estate investments
The various factors responsible for the upswing in the India real estate investments are:
- Increasing demand in residential, commercial and industrial properties
- Increased living standards of people
- Higher disposable incomes of people
- Growth in hospitality/ hotel industry
- Development of Special Economic Zones (SEZ)
- Development of IT and ITES industry.
The appeal of real estate sector has been so strong that it has overtaken all other investment options like the capital, debt, and bullion markets. It is attracting investors by offering a possibility of stable income, capital appreciation, tax structuring benefits, and higher safety compared to any other investment options.
Mutual Funds
Plenty of mutual fund schemes are available in the market to meet all the need of an individual with a various risk appetites. Risk bearing capacity differs from one to another so before investing you should be wise enough to chose which Fund which best suits your needs. One must carefully choose from the basket of schemes, a combination of debt and equity investments will be the best option it will help you to reduce the risk. One can also use Systematic Investment options available with all the mutual funds.
There are different types of Mutual Funds in the market such as Stocks funds, Bonds funds, Money market funds, Balanced fund, Asset allocation funds, etc. Again these funds have sub category. Selecting the best one that suits your need is very important.
Advantages of Mutual funds
Below given are the major advantages of investing in Mutual Funds
- Diversification
- Professional Management
- Greater convenience
- High liquidity of Fund
- Minimum Initial Investment
Types of Mutual Funds
Mutual funds fall into the following major categories;
- Stocks funds
- Bonds funds
- Money market funds
- Balanced fund
- Asset allocation funds
ULIPs
Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in terms of their structure and functioning. As is the cases with mutual funds, investors of ULIPs are allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis. Likewise ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified funds, balanced funds and debt funds, etc Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance component. However it should not be interpreted that except the insurance element there is nothing differentiating mutual funds from ULIPs.
Advantages of ULIP
- Medium Term to Long Term Investments
- Fund Management Expenses will be less
- Maturity Amounts are Tax Free
- Option to choose from different funds
- Value based investment
- Protect the life / health and also take the advantage of investment
Manage Your Investment Portfolio
Merely investing doesn’t help you to make your investments grow. “Money making is just an act but money management is an art”. If you are not good enough to manage the money, it is very easy to lose all your hard yearned money. From 23 years of age a person will start the efforts to earn money he will continue the same till he reaches 60. Everybody is giving importance to money accumulation (How to earn money) majority of the people doesn’t know the importance of money management. If you are good in money management, you don’t have to work for a longer period of 35-40 years, work only for the initial 15-20 years, your excellence in money management will help you to multiply the money whatever you have earned during this period.
We will consider an example to understand the importance of money management.
There are two IT professionals named Varun and Sanil, both are earning Rs.10 lakh per annum. Every year they use to save Rs.5 lakh. Varun is good in money management, each year he changes his investment preference according to the changes in the economic conditions. Over a period of time he has developed a good portfolio. At the same time Sanil is not that good in managing money, he invested all his money in Fixed Deposit (FD). Below given illustration will help you to find out
the difference in the growth of their investments.
Varun’s Portfolio
Year | Investment | Amt. Invested | Avg. Rate of Return | Total Return From Inception |
1 | Fixed Deposit | 500000 | 7(%) | 983575.68 |
2 | ULIP | 500000 | 12% | 1386539.38 |
3 | Mutual Fund | 500000 | 15% | 1529511.431 |
4 | Stock Market | 500000 | 20% | 1791590.4 |
5 | Gold | 500000 | 25% | 1907348.63 |
6 | Real Estate | 500000 | 20% | 1244160 |
7 | Stock Market | 500000 | 20% | 1036800 |
8 | Mutual Fund | 500000 | 15% | 760437.5 |
9 | Govt. Securities | 500000 | 7% | 572450.00 |
10 | FD | 500000 | 7% | 535000.00 |
Total Returns after 10 Years | 11747413 | |||
During these 10 years Varun managed to invest in different avenues according to the changes in the economy. He was not finance professional to understand all the dynamics of investments and economy but knew the basics of investment. You don’t have to become an expert in finance to create your own portfolio. At the end of 10th year Varun created a wealth pool of Rs. 1,17,47,413
Sanil’s Portfolio
Year | Investment | Amt. Invested | Avg. Rate of Return | Total Return From Inception |
1 | Fixed Deposit | 500000 | 7 % | 983575.68 |
2 | Fixed Deposit | 500000 | 7 % | 919229.60 |
3 | Fixed Deposit | 500000 | 7 % | 859093.00 |
4 | Fixed Deposit | 500000 | 7 % | 802890.74 |
5 | Fixed Deposit | 500000 | 7 % | 750365.18 |
6 | Fixed Deposit | 500000 | 7 % | 701275.87 |
7 | Fixed Deposit | 500000 | 7 % | 655398.00 |
8 | Fixed Deposit | 500000 | 7 % | 612521.50 |
9 | Fixed Deposit | 500000 | 7 % | 572450.00 |
10 | Fixed Deposit | 500000 | 7 % | 535000.00 |
Total Returns after 10 Years | 7391799.57 | |||
Sanil’s ignorance made him to invest only in Fixed Deposit he believed that only bank deposits can give his a safe and high returns. He doesn’t bother to understand about other avenues of investments. As a result he ended up in losing a huge opportunity to multiply his wealth. Moreover he had to pay tax on all his investments and its returns. But on the other side Varun enjoyed tax benefits by making long term investments in insurance, equities and mutual funds.
Total Returns of Varun and Sanil
Total Returns of Varun and Sanil | ||
Varun | Sanil | Difference in Return |
11,7,47,413 | 7,3,91,799 | 4,3,55,613 |
Return Analysis
Varun
Total Investment: 50, 00,000
Total Worth of Investment: 1, 17, 47,413
Total Returns: 67, 47,413
Sanil
Total Investment: 50, 00,000
Total Worth of Investment: 73, 91,977
Total Returns: 23, 91,977
From the above mentioned example you can realize the importance of portfolio management. Varun and Sanil are working in the same company and earning same income but over a period 10 years the total wealth of Varun has become almost double than Sanil. Nobody can multiply their wealth by doing black magic. All you have to do is keep a small portion of your time to understand your country and its economy.
Focusing on any single asset class may not yield good results in this New Year too. The right combination of equity, gold, real estate, commodities, and cash is the key to create safe and stable returns in 2010. Investing in gold, real estate and other commodities can protect you when the inflation rate is hiking.
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