Investment Industry

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What is Investment?

Investment is referred to as the concept of deferred consumption, which could be in the form of an asset, rendering a loan, keeping the saved funds in a bank account such that it might generate lucrative returns in the future etc. The options of investments are huge; all of them having different risk-reward trade-offs. This concludes that the investment industry in India is really broad and that is why understanding the core concepts of investments and accordingly analysing them is essential. Only after a thorough understanding of the investment industry, can an investor create and manage his investment portfolio such that the returns are maximized with the minimum level of risk.

investment industry in India

The investment industry in India has been riding high for the last few years. Warren Buffett has always mentioned that investment in India should always be a long-term story - as the industry has been growing from an emerging market to a developed one. The next 10 years in India will surely give good returns. India is one of the world’s largest and fastest-growing economies. Many nations have shown interest in investing in India, there is a large consumption base, cheap skilled labour and surplus resources at their disposal. India’s GDP for FY2021 is Rs. 195.86 lakh crores. India is the third-largest producer and consumer of electricity. The generation amount is 1,561 terawatt-hour.

Types of Investments

As stated earlier, the investment industry is huge; therefore, the types of investments are also varied. Different types of investments are:

Cash investments:
Cash investments are generally risky and offer a low rate of interest. Some of the important types of Cash investments are; certificates of deposit (CDs) and treasury bills and savings bank accounts.

Debt securities:

This type of investment gives returns in the form of fixed periodic payments and the fixed capital appreciates at maturity. This is safe bait for the investors in the investment industry and has always proved to be a risk-free investment tool. Though it is generally low in risks, the returns are also lower than the other peer securities.

Investors can also buy stocks (equities) from the secondary markets and be a part of any business corporations that are listed in the stock exchanges. In this way, one can become a part of the profits that the company generates. But one thing that should be kept in mind is that stocks are generally more volatile and carry more risk than bonds.

Mutual funds:
They are usually a collection of stocks and bonds that a fund manager selects for an investor such that the returns are maximum. The investor does not have to track the investment, be it a bond, stock- or index-based mutual fund.

Derivatives are financial contracts, whose value is derived from the value of the underlying assets like equities, commodities and bonds. They can take the form of futures, options and swaps. Investors choose derivatives as they are used to minimize the risk of loss that results from variations in the underlying asset values.

The items that are traded on the commodities market are agricultural and industrial commodities and they need to be standardized. Commodities trading have always been giving high returns and thus they are the riskiest of all investment options. One, who trades in commodities, requires specialized knowledge and analytical capabilities.

Real estate:
Investing in real estate has to be a long-term affair. Funds get hooked into the real estate sector for a considerable period.

Comparison of investment options in India

Top Investment AreaInvestment RestrictionsReturn on InvestmentRisk of Loss
GoldNo limitOffers high returns as gold prices are on a riseLow
Bank Deposit---Offers up to 8.5 per cent annual return depending on the bank and periodLow
Mutual FundsNo limitEquity-Based: HighEquity-Based: High
National Saving Certificate (NSC)No limitOffers up to 8 interest calculated biannuallyNo risk
Real EstateNo limitCapital gains guaranteed for specified avenues also tax exemption are available on long term investmentsLow

Where to invest in India?

The financial sector in India, specifically the banking stocks have been doing well over the last five years. The current condition of the Indian banks seems to be strong and a lot of growth is expected shortly. The IT stocks too have been faring well and that is why the investors should invest in stocks of quality companies that have a good revenue track record. The other stocks in the Indian financial market include; consumer goods stocks, auto stocks and agriculture-related stocks. Some of the favourite stocks that investors can look forward to are Infosys Technologies, HDFC Bank, ICICI Bank.

Why to invest in India?

  • One of the major reasons behind investing in India is Inflation. Due to the constant rise in the cost of goods and services people in India are losing out on their real money value. Hence investing becomes very important to reap the benefits of your hard-earned money.

  • Due to the decrease in mortality rate and higher life expectancy people in India need to invest. To live longer you need money to sustain, especially during old age.

  • Investing also saves you from paying heavy amounts as tax.

  • If you invest perfectly according to your requirements you can improve your current standard of living and also keep a wealth reserve for the future.

Challenges of Indian Investment industry

The investing story in India has not always been that smooth. Pitfalls are sure to co-exist. The main hurdle in India's growth now is its infrastructure. On the other hand, infrastructure is India's biggest opportunity as well. The fiscal deficit of India also poses a big threat to the investment industry in India. For an emerging economy like India, it is recommended that an investor always balances the unique risks against the potential for high long-term growth. Accordingly, the decision for investment should be made.

Of late, the Indian economy is turning out to be extremely conducive in terms of domestic and foreign investments. India Investments has been the major propelling force towards India's attainment of self-sustained growth by way of rapid industrialization. The pioneers of the investment industry have been Foreign Direct Investment (FDI) and Investments made by NRIs.

Foreign Direct Investments in India has been gearing up momentum every passing day. So, to view an economy that is entirely open to the global markets, the investment industry in India should be groomed in a manner that the maximum returns are achieved. The investment industry's potential should neither be overestimated nor underestimated. We should know how to deal with the complexities of the investment industry and grow along with it.

Advantages of investing in India

India has a well-developed administration and industrial sector.

  • It is a vast nation full of natural resources and unlimited opportunities.
  • Educated and skilled workflow are available easily and at reasonably affordable prices.
  • It is one of the world’s largest consumer bases and is an ever-growing and in-demand country.

Recent statistics

Overall exports from Feb 2020 to Feb 2021 were at US$ 439.64 billion, a 10.14% decrease.

  • Overall imports are estimated at US$ 447.44 billion, a 20.82% decrease.
  • Venture Capital sector over 920 deals worth US$ 47.6 billion.
  • Jio platforms and Reliance investments contributed the most to this growth.
  • Gross tax revenue is Rs. 113,143 crores for February 2021.
  • The finance bill of 2021 proposed amendments to increase funding for infrastructure and real estate.
  • Mutual funds’ assets worth Rs. 29.83 trillion as of November 2020.
  • Coal India will be investing Rs. 3,370 crores to develop 21 railway sidings to aid the transportation of coal.
  • The government of India hopes for the nation to become a 5 trillion-dollar economy by 2022.
  • The Union budget of 2021 shows a 34.5% increase in Capital expenditure.
  • The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has created over 350 crore individual day jobs till February 28, 2021.
  • MGNREGA has seen an increase of 41.6% in FY 2021 since FY2020.
  • According to an economic survey, India’s GDP growth for FY22 is projected to be 11%.
Last Updated on August 10, 2021

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