Which Platform is Best for Investment

by Vinay Kumar Brighter Mind Equity Advisor

Money has time value embedded in its value. It means that the value changes with passage of time. The purchasing power of money decline over time due to factors like Inflation. Inflation eats up the purchasing power of money. One can have the fair understanding of inflation impact on the value of money by applying “Rule of 72”. We all know this rule and use this to calculate the time required to double your money for a given rate of interest.

It’s a thumb rule and it works in reverse when we talk about inflation. Let us understand with an example; suppose Inflation rate in the country is 6%, then dividing 72 by rate of inflation brings out the time taken where value of money become half in real term assuming constant inflation rate over the period under consideration. In the above case, it takes 12 years where the value of money becomes half.

Therefore, one should save and invest to protect the value of money from erosion. One should always look to invest in avenues where bite of inflation is lower or negligible. Apart from protecting the value of money, there are other motivations also to save & invest the money such as reaching financial goals like owning a house, higher education of kids, marriage, retirement planning, wealth building to the next generation etc.

There are various ways and instruments available where one can invest the money. One can open a deposit saving account in a bank and put the money there. There are various deposit schemes available like time deposit, recurring deposit etc. with a bank.

Apart from bank deposits, there are other deposit instruments like National Saving Certificate (NSC),National Pension Scheme (NPS), Public Provident Fund (PPF), Kisan Vikas Patra (KVP), Post office Deposits available for the public to invest.

There are other asset class also like Bonds, Real Estate, Gold, Other precious metals, Equities and Art pieces, where one can invest his money.

Bonds are suitable for investor with low risk appetite. Bonds are issued by the central government, state governments, quasi government entities and corporates. Government bonds are safest for investment from the point of view of credit risk. There are various types of bonds available with different maturities. Some common instruments are G-Sec, State bonds, NHAI Bonds, SIDBI Bonds, Bonds of various corporate houses etc.

One can also invest in Bonds through Asset management companies. There are various options available for investment like liquid fund, Ultra Short term Funds, Short term Funds, Floating rate fund, Inflation linked bond, Zero coupon bonds etc.

One can invest in Real estate also. Now a day, various options are available like outright purchase of property or one can invest through REITs. Few REITs are also available on stock exchanges.

One can invest in Gold in physical form or digital form like Gold Bees. Sovereign Gold Bonds are also a good way to invest in Gold.

One can invest in equities directly or indirectly through Mutual Fund route, PMS or AIF route. There are nearly 4000 actively traded stocks on the Bombay Stock Exchange where one can invest. Investment in equities poses risk hence it is suitable for people having higher risk appetite. Direct investment in equities requires skills and time hence often the toughest.

Direct investment in equities is a full-time activity as it requires selecting companies, monitoring their activities, reading their financial statements and acting on array of information surrounding the industry.

One can invest directly on its own or with the help of SEBI registered Investment advisors like Brighter Mind Equity Advisor Ltd.

One can invest indirectly also in equities via Mutual Fund. Mutual Fund houses have resources with them to track the market actively. They have Fund Managers & research team that have wide experience across industries and business cycle. One can start investing with minimal amount as low as Rs.100. Mutual Fund Houses pool money from investors and make a portfolio of stocks & debts under their various schemes. An investor gets units in lieu of their investments at a given NAV (net asset value) which is basically price of a unit of the scheme. The NAV gets updated at the end of the day.

One can also invest via PMS or AIF. These routes are suitable for HNIs/ Ultra HNIs as the minimum investment requirement is high. PMS is tailor-made, customised investment service to the investors as per their investment objective. PMS manage equity portfolio on behalf of their clients. The PMS investment management team may follow discretionary style or systematic style to invest while making the portfolio. The Minimum ticket size for investment in PMS is Rs. 50 Lakh. PMS services gives more flexibility compared to Mutual Fund in term of investment style.

AIFs are pooled investments to invest in private equity, hedge funds, venture capital etc. based on their investment objectives. These investments are suitable for ultra HNIs as the minimum ticket size required to the investment is Rs. 1 Cr.

Each investment instruments have their pro & cons and hence one need to understand their risk profile and investment objectives before doing the investments. Some asset class possesses higher liquidity & investment returns track record, cash flow etc. compared to other asset class e.g equity but one need to have stomach to absorb the volatility during the investment period as investment return from equity are not linear.

Some instruments have lower liquidity and are more tangible like real estate. Real estate investments are suitable in inflationary times but difficult to liquidate in time of need.

Gold provides safety from inflation and often works as an inflation hedge but carry the risk of theft if one holds in the physical form. Gold does not generate any cash flow and often there are long period of stagnation in appreciation in its price.

To summarise, one need to understand the asset classes and understand their own investment objectives before doing an investment either directly with the help of an SEBI registered Investment advisor or through professional fund management vehicles.