“Someone is sitting in the shade today because someone planted a tree long time ago”. Albert Einstein quoted “Compound Interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it”.
We have already seen in our previous posts that investment is usually made from our savings so as to earn more profit. Again clarifying, investment is usually made from saving deployed in avenues / instruments to earn or cultivate more returns. Making money by deploying money is called Investment. Like we have business in which we deploy money we called it as capital. Like a shopkeeper selling groceries buys a shop, buys some furniture, buys goods from wholesale market and sells it to his customers; he earns money by selling goods is one of the types of business. A person running a factory of confectionary goods, deploy capital by buying a land for factory, buys machinery and raw material and sells his finished goods to wholesalers and retailers and earns profit on them is also a business. Similarly all businesses require capital, knowledge of business and the most important sales, to earn profit. Similar to all businesses, in investment we need money and it is called as Investment Amount and the profit incurred is called is Return on Investment. Like we do any business we require Capital and Knowledge of business, in the same way in Investment we need Investment Amount often termed as Capital and knowledge of What to Buy/Sell? When to Buy/Sell and also How much to Buy/Sell?
First and Foremost, We Indians are more attracted towards investment in Gold. As we all know, we need gold to gift our daughters and sisters during their marriage and when they give birth to babies. So we have a habit of accumulating gold for our daughters and sisters so that when we need it we don’t have to buy that. As we all know inflation causes price fluctuations and rises in price of gold and real estate in long run. So when needed, gold can disturb our budget and our happiness of the event may affect due to expenditures and spending on gold.
As we all know gold is found in earth crust in a proportionately limited quantity and extraction of gold from earth crust require huge setups of machineries which depreciate over a period of time and the cost of labor is also increasing day by day and inflation is also causing the price rise in gold, so there are very limited chances of gold price to reduce. Focusing further gold price will rise further also in long run as it is used and accumulated continuously in every Indian family of all religions as it the symbol of prosperity and also it holds religious virtue. Figure tells that out of total consumption / import in the world, India accounts to 20% each year. As we already saw in our previous posts of inflation, this gold import also accounts to major proportion in our current account causing trade deficit and co relating it to inflation we don’t see any huge fall in price of gold when all the prices of goods and services are increasing day by day. Clarifying further, this gold is held by major Central Banks/Reserve Banks of all the countries. If any country plans to sell its gold reserve the price will come down but will again attract investors at such attractive price and again the price of gold will march further and the rally in price of gold will continue in long run.
In India there is a proverb “Gold can be sold also at midnight”, that is investors and money lenders are more attracted towards buying gold or accumulating gold. So accumulating gold and selling it further in higher prices will generate returns on investment.
The Second and most wide avenue of investment is Real Estate or investment in immovable property. If we buy real estate say flat, shop or bungalow we earn some money by letting it on rent and after some time when we sell it we incur profit and we consider them as return on investment. Land is also limited on Earth, clarifying further land suitable for use as habitat is also limited and population is also increasing day by day, families are getting smaller and micro day by day. If today in a family there are three brothers, they will grow up, marry and division of family to micro will again generate demand in real estate for habitat and as inflation is also eroding the value of money; so the scope of real estate or property is also increasing day by day.
The Third and most trendy avenue of investment is Endowment plans of Insurance Companies and Mutual Funds. These plans run buy companies pool money from investors and their fund managers invest this money in Government Securities, Shares and Debentures in professional way. People invest in Mutual Funds and Endowment plans of Insurance companies as they know tracking market is a tedious job and every time which is difficult. So they opt these avenues to cultivate better returns than deposits and as these Fund Managers take due care to protect investor’s capital or investment. Returns in these funds depend largely on skills of fund managers.
The Fourth, the most famous, fabulous, potent and cursed avenue of investment is by investing directly into the Stock Market. In the coming posts we will see the same in deeper and with more clear glasses. If you like the posts please share the post to the needed one to help them prosper with knowledge and wisdom.