Investing in times of crisis

Every body becomes an investor when market is bull, but in times of crisis, a more detailed analysis of investment options is required. The criteria for selection of securities should be the following three:

1. Clarity about future profits ( or visibility in benefits)
2. High shareholder returns
3. Reasonable valuations (value + quality)

Choose from different types of investments options listed here and eligible based on your risk tolerance and your investment goals.

What type of investment suits you best?

(1)   Savings Account
Savings account investment is good for those investors who want to accumulate savings in lump sum or periodic payments. Savings account is a guaranteed fixed rate investment. Investors whose risk profile is very low shall opt for savings account options. Examples of such investment options are bank savings account, recurring deposit accounts, post office savings etc.

(2) Capital-guaranteed with a guaranteed fixed interest rate until maturity.

A certain segment of investors invests with the objective of saving their capital form the eroding effect of inflation. Such investors does not invest with target of big capital gains, instead if they just enough sufficient returns that matches inflation rate, they will be happy. Such investors shall look for this investment option. Examples of such investment options are bank fixed deposits, provident fund schemes, national savings certificates, government bonds, kisan vikas patra etc.

(3) Capital-guaranteed 100% with a return based on a market index

This type of investment options is also called Market-linked guaranteed investments because the capital is secured but returns are dependent on index fluctuations. Investors who have a low risk profile but would like to take advantage of investing in equity can opt for this investment option. Unit Linked Plans (ULIP) are an example of such type of investment. But be sure to invest for a long time horizons, as short term investing in ULIPS will attract huge loads and will result if more loss than gain.

(4)   Mutual Funds
Investors who have a comparatively high risk profile and would like to take advantage of investing in equity can opt for this investment option.. Mutual Funds allow you to diversify your portfolio and benefit from the expertise of reputable managers.

(5)   Shares and other securities

For those who want to invest in the stock market with or without the advice of an expert. This option is for those investors who has some basic knowledge of business and knows how to evaluate a business process. This know-how can be achieved after doing few months of research.

Let it whatever type of investment options suits your requirement, but remember that it is never too late to start investing. In worst case there are chances that you will not make big profits from your investment (may be only 8% to 9%) but it is still better than nothing. Suppose you decide to save 0 each month, then in next 5 years you have 00 alone as your principal, which other wise you would have spent on unnecessary things. This it self is a big plus in addition to 8% return on your principal amount of 00 (approx 0).

Taking above reasoning and justification into consideration, a reasonable option would be investment in Hedge Funds. This financial tool of investment (hedge funds) was born in United States in the 50s, has not yet had a strong entry in Asia. Contrary to what happened in countries like Sweden, which maintains a constant 9% of its investments in this alternative investment option . Hedge Funds are funds that combine short positions in securities and long positions to make a hedge of the portfolio against market volatility. The revenue generation of the most successful Hedge Funds can reach 150%. In contrast, investment in such instruments requires skills far superior to that of other common mutual funds and index funds. The idea is to seek absolute returns, whether markets is rising or falling. The advantage of investing in Hedge Funds can is as listed below:

* Diversification
* Risk Management
* Lower volatility
* Increased profitability
* Increasing the efficient frontier when added to a portfolio

The disadvantage of investing n hedge funds is as listed below:

* The risk in the choice
* High cost of professional management

Author is a big enthusiast of the process of Investment Options and aspires to set-up a highly successful online business of himself. By profession I am a mechanical engineer and is a firm believer in the concept of ‘working for self’. Working for self will lead to Financial Independence and this can make this world a better place to live’. I have been heavily influenced by the theories and practices of Warren Buffett and tries to practice investments a a discipline.
www.getmoneyrich.com


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