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SWOT Analysis of Best Investment Options

Investment of money is essential to protect money from wrath of inflation. Not all investment options are structures to beat inflation. This is the reason why a common man must know about best investment options to invest money in India. Inflation beating investment options are risky and one shall not accumulate ‘only’ these in their investment portfolio.

A clever mix of all types of investment options shall be included in investment portfolio. When it comes to investing in inflation-beating-investment-options, timing the purchase of is very essential. So on one hand inflation beating investment options are risky and on other hand we need to time the market to buy them.

Tired of reading? We will speak it for you…

This is the reason why good investment is a skill (risk aversion and timing) that is essential for everyone to learn. We all must protect our money from wrath of inflation. For this we must create a well diversified investment portfolio. Let us see what best investment options are available how and where to invest money in India. Selection of correct mix of investment options in ones portfolio is essential.

What is SWOT Analysis?
SWOT analysis can help us evaluate an investment option. If we only know more about an investment option, we can wiser investment decisions. SWOT analysis helps us to scrutinize an investment option on basis of its STRENGHT, WEAKNESS, OPPORTUNITY & THREAT.

SWOT analysis is very cleverly designed to help unvestors get clear understanding of various investment options. Though SWOT can be applying to almost every thing in life, but here we will use it for investment options only. It worth evaluating investmens like this. Idea of doing SWOT is to understand how STRENGTH (S) of an investment covers up its WEAKNESS (W). How we can maximize the OPPORTUNITY (O). How we should protect ourselves from potential THREATS (T).

Best Investment Options 1: Mutual Funds

There is reason why I am proposing mutual funds among the first investment options. If you are a beginner in investment who wants to know how and where to invest money then mutual fund should be the first logical choice. Why I am saying that mutual fund should be the first logical choice for beginner because this is a no-brainer option for beginner. Mutual fund companies has fund managers who collects money from citizens and invests this pooled money in different investment option. The options in which the pooled money is invested depends on the objective of the mutual fund. If one is not aware about different investment options then mutual fund becomes the obvious choice. Once the pooled money is generated it start making loss or profit depending on the situation. The income gets shares between the investors who has invested in that mutual fund.

Typical fund objective can be mainly categorized into three main categories. Mutual funds can be either growth focused, income focused or a mix of growth and income which is called as balanced funds. Growth focused funds mainly invests in equity and hence holding time shall be long term. Income focused funds invests in securities that are risk free like bonds or debentures. These risk free options generate regular income which is paid as dividends among unit holders. As the name says, balanced funds invests in both equity and risk free securities. The return of balanced fund is between long term returns of growth and income funds.

investment options in India

SWOT ANALYSIS OF EQUITY LINKED MUTUAL FUNDS

STRENGTH OPPORTUNITY
  • Suitable for passive investors. Self knowledge about Equity is not required. Expert Fund Managers Invests on our behalf.
  • Very Reliable Return in long term
  • Investors with low risk tolerance can buy equity mutual funds
  • Returns can beat inflation
  • Take service of best fund managers who can select best stocks for us.
  • Allows us to invest small amount of money in form of SIP. Lump sum investment is not required. Minimum investment limits can be as low as Rs 500/month
  • Opportunity to investment in large number of blue chip stocks even with small funds
WEAKNESS THREAT
  • Returns are reliable only in long term
  • Low Liquidity of Funds
  • Not as easy as stocks to buy and sell mutual fund units
  • As portfolio contain only equity, investment is not diversified. Risk of loss in case of market collapese is very high.
BEST PRACTICE
Keep contributing to Equity Mutual Funds using SIP with investment horizon of > 5 Years

Best Investment Options 2: Fixed Deposits

When I started investing, this was my favorite investing vehicle. The reason why I used to like this option was its ease with which I can put money in it. Using my online banking account, I could transfer my money from saving account to fixed deposit account in few seconds. This investment option is liked by all range of investors starting from new to a pro, the reason being its suitability as low risk investment option. When we are thinking about several, low risk investment options then probably fixed deposits of banks will rank highest. Here we lock our money for a predefined period and in the gross interest we earn is very reasonable. Over all there can be three categories of fixed deposits: 1) Deposits in Banks, 2) Deposits with companies & 3) FMP’s of Mutual Funds.

a) Deposits in Banks: Deposit in banks are very easy to execute. These days all savings accounts are linked with fixed deposit account. From comport of our home we can click start a fixed deposit. Online fixed deposits can be start from denomination of Rs 5000 and above. The tenure of deposit can be from few days to several years. The interest you earn will depend on the principal value of investment and tenure of deposit. One can be 99.9% sure that the returns promised by banks will be offered by end of the holding period. These fixed deposits in banks also offer the facility of monthly income withdrawal of interest. This works as a great income generator for many specially senior citizens. The interest generated from fixed deposit are taxable.

b) Deposits with companies: These fixed deposits are same as bank FD’s but the only difference is, instead of banks we lend our money here to companies. Banks are more closely regulated and hence investment in banks are lot safer, and in comparison fixed deposit in companies are slightly more riskier. In case the company goes under liquidation then the invested money is under risk. But this generally does not happen and fixed deposits has worked fantastically for risk averse investors. The interest generated (above Rs 5000/year) from fixed deposit are taxable.

c) FMP’s of Mutual Funds: FMP’s are better known as fixed maturity plans offered by several mutual fund companies. Their functionality is very similar to traditional fixed deposits. Here the mutual fund companies ask investors to lock their money in their fund for a certain period with a promise of certain interest. When you will see a mutual fund brochure you will notice that at the beginning of its features a term will be mentioned like ‘Closed Ended Scheme’ or ‘Open Ended Scheme’. These closed ended scheme are nothing by FMP’s. When these FMP’s are launched we can buy its units and should hold on to it till a predefined period of time.

investment options in India

Best Investment Options 3: NSC

This are also investment options which are risk free. The interest offered by National Savings Certificate (NSC) is 8.8% (compounding half yearly) which keeps changing as per government regulations. Investment in NSC can be done in multiple of Rs 100, Rs 500, Rs 1000, Rs 5000 & Rs 10,000 with no upper limit of investment. The minimum tenure of investment in NSC is five years. The income generated in tax exempted under section 80C.

investment options in India

Best Investment Options 4: PPF

Pubic Provident Fund (PPF) is among my favorite long term investment options. It allows me to lock my money for period of 15 years with full security as this option is backed by government of India. I do try to contribute maximum to PPF but the maximum contribution per year is limited to Rs 70K. The advantage of PPF is that after 3 years of starting this account I am able to take loan against it. If one does not want to opt for loan then premature withdrawal is also possible from 4th years of starting the PPF account.

investment options in India

Best Investment Options 5: Stocks

Stock market is one of the most profitable investment option. But what comes with this profit is huge risk of losses. The expertise that one requires to invest in stock market is not possessed by majority. The risks associated with stock market is because of the price volatility. The short term volatility of stock market is absolutely unpredictable. If someone is doing it, this is only speculative approach not investing. But in long term the way stock behaves is strictly as per the linked business fundamentals. This is one reason why investors are asked to analyze business fundamentals of a stock and buy them for long term. Suppose a stock is showing EPS growth at rate of 20% per annum in span of 5 years. It means the market price of stock will also appreciate in the same rate, but the time they need to exhibit this growth is 5 years. In short term this stock may behave very erratic, but looking at the long term picture (5 years) the growth patter will be very evident.

Best Investment Options

SWOT ANALYSIS OF STOCKS/ SHARES/ EQUITY

STRENGTH OPPORTUNITY
  • Dividend Earning
  • Potential for high returns in form of capital appreciation in long term
  • Return can beat inflation
  • Very easy to buy and sell
  • Very reliable return in long term
  • Provides Ownership in a Company
  • Entitles you to a portion of companies Profits
  • Gives you voting rights in a company
  • Allows us to invest small amount of money in form of SIP. Lump sum investment is not essential.
WEAKNESS THREAT
  • In Short term stock prices is very volatile. Hence certainty of returns is very low.
  • Not suitable for passive investors. Self knowledge about stocks is essential.
  • Individuals with low risk tolerance should avoid investing in stocks directly.
  • Very high risk of Loss of invested money in case of company getting liquidated or bankrupt.
  • No protection under market collapse as investment is not well diversified.
BEST PRACTICE
Buy Fundamentally Strong Stocks which are Undervalued. Holding Time > 5 Years

Best Investment Options 6: Gold

If any investment option can compete with stocks that it is gold. Returns of gold in last one decade is better than stocks. But it must be admitted that gold in itself carries no fundamentals. It is purely a speculative asset. The price appreciation of gold is totally dependent on increase in demand. As population of this world is ever increasing so demand will also go up. Unlike stocks gold cannot generate any assured income for you (like dividends or interest income). To make profit you must sell-off your investment holdings (gold). I personally consider gold as a better emergency saving option. This is one reason why I do care to keep at least 10% in my portfolio as my emergency savings. We can buy gold as physical gold (bullions, coins & bars) or in Electronic form (mutual fund or ETF). Other form of precious metal that is available for investing is SILVER.

investment options in India

Best Investment Options 7: Real Estate

Investment in real estate properties like land, residential apartments, commercial buildings etc can be very profitable. Investment in real estate properties generates the reliable form of income called as rental income. Like stocks generates dividend income real estate generates rental income. But you can buy stocks any day but real estate cannot be bought as easily like stocks. The main reason being high capital requirement, real estate properties are very capital intensive. This is one reason why majority of invests in real estate by taking loans. The loan drastically reduces the profitability of real estate properties. In addition to rental income, real estate investment can also give substantial capital appreciation.

Property Launch Rate(Rs./Sqft) Year of Launch Rate as on 2013 (Rs./Sqft) Annualized Growth Rate % In Years
A 1400 2002 10,000

19%

11

B 3500 2003 14,000

14%

10

C 2500 2006 10,000

22%

7

D 1600 2007 12,000

39%

6

E 7500 2009 15,000

19%

4

SWOT Analysis of Real Estate Property

STRENGTH OPPORTUNITY
  • Potential Passive income generator in form of rental income
  • Capital appreciation is also very fast.
  • Owning a large physical asset like this gives a emotional and monetary back-up
WEAKNESS THREAT
  • Very capital intensive investment hence people often buy it with home loan. This decreases profitability of investment
  • Expenses linked to real estate property is property tax and maintenance cost
  • Its not as easy as stocks or mutual funds to sell the property. Liquidity of fund is limited.
  • Wrong Location of property can give very low returns
  • Aged and dilapidated property is a potential threat
BEST PRACTICE
Buy a Property of Best Builders. Book property during pre-launch on project launch itself.

Best Investment Options 8: ULIP’s

Unit Linked investment is slightly a newer form of investments than what we have discussed till now. People invested in Unit linked plans (ULIP’s) very heavily in early 2000 when it was first released. It was marketed as ‘safe equity linked investment’. But later when people realized the extra cost that goes into ULIPs, and as a result low net profitability, they shelved ULIP’s. Now ULIP’s marketing strategy has changed and even people’s expectations have evolved post 2008 financial crisis. ULIP’s are investment opportunity which is a combination of a insurance plan and equity. ULIP is more of a insurance plan than investment, hence people must not invest in them with expectation bug returns.

Best Investment Options 8: Art or Antique

Common people generally refrain themselves in investing in Art or Antiques. It is not easy to identify if a particular item is a good art or is really an antique. Like gold, Art and Antiques is also speculative asset. Its value likes in the eyes of a beholder. It cannot generate any income on its own, so you can never evaluate its true value. Its value is simple estimated by how much others are ready to pay for its possession.



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Disclaimer: All blog posts of getmoneyrich.com are for information only. No blog posts should be considered as an investment advice or as a recommendation. The user must self-analyze all securities before investing in one.

4 Comments on "SWOT Analysis of Best Investment Options"

  1. Usefull & Informative article . Thank you a lot.

  2. Very informative article, but some correction is required on Best Investment Option-6 Gold. Gold price in last 20 yrs jumps from Rs 500/g levels to 2800/g(not28000/g) level.Its annualized rate is 9% not>24%.And Art or Antique is in Best Investment Option no is 9 not 8.

  3. Hello manish, I m youy big fan. I almost read all of your articles posted on the web. I just have a curry that is there any way of making money online from home. If there are ways kindly guide me. Nagendra

  4. very infromative article manish. big thanks.

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