CHARACTERISTICS OF IDEAL INVESTMENT
At the time of making final choice , a potential investor usually comparison between the features and qualities of his investment with the characteristics of an ideal investment . there are many qualities which can be attached to an ideal investment, but the following are which will be considered by most of the investors:
- Capital appreciation prospects:
In time inflation, an investor expects that the investment made by him appreciate in such a way that it keeps pace with the changing value of money. In other words, when he withdraws his capital from the investment, he is in position to purchase the same quantum of goods and services as he could have purchased when the capital was originally invested. Such security of investment is referred to as security in real terms because of the fact that the real value of money is maintained during the period of investment. The higher the chances of capital appreciation, the more attractive the investment will be. Thus, an ideal investment is inflation – proof and it observed that in recent years, the investment in excellent real properties have possessed this quality of being secured in real terms to a greater degree than most of other investments.
- Liquidity :
Though it is good to remain invested in the long run, you should not be stuck when there is an emergency. Thus, divide your investment into liquid as well as illiquid funds. The illiquid funds may offer less volatility and stable returns. At the same time, liquid funds will allow you to make sound investment choices. Invest funds in different assets with varying liquidity degrees to ensure effective risk management.
- Cost of purchase and sale:
It is desirable that the costs cost to be incurred in investing and withdrawing money should be minimum. For certain investments there is practically no cost in depositing money and subsequently withdrawing it. For others like real properties, considerable expenses are to be incurred for stamp duties, professional fees, etc. at the time of purchase or sale of such investments . it is quite clear that the cheaper it is to invest and withdraw money , the more attractive investment will be.
- Divisibility of holdings :
The investment should be such that if the investment desires to recoup of his money, he can do so by depositing off portion of the holding. The quality of divisibility into smaller units grants and added attraction to investment . The investment in real estates generally lacks this quality.
- Cost-Efficiency
The benefits generated by an investment portfolio must outweigh the expenses incurred in managing it. Managing the investment includes advisory & custodian fees, transaction costs, and others. You need to consider all costs, after-tax, and inflation implications to determine if your portfolio is cost-efficient. If you are unsatisfied with your portfolio or don’t know how to manage and improve it, invest in WealthBaskets curated by SEBI registered professionals by selecting a mix of equities and ETFs. The WealthBaskets are closely monitored and can help you invest without worrying too much about the safety of your investment.
- Ease of purchase and sale:
If the investment is ideal , the investor can realise his capital with a short notice, without undergoing any loss. The ideal investment will always be in demand in the market and the investor will not be put io any inconvenience at the time of realising his capital in case the need arises for him to get the capital are relatively short notice. , Thus, for an ideal investment, there will be a constant stream of buyers and sellers coming on to the market. If the investment lacks marketability , then investors will require a higher yield to compensate them for this fact. Certain real estates can be sold in the market like hot cakes and they will be very near to an ideal investment. For other real estates, it will be very difficult to find suitable purchasers and investment in such properties will be far from that of an ideal investment.
- Security of income:
The Realisation of income from the investment should not only be certain, but it should also be regular. An investor is giving up the immediate use of his money and is allowing its use to pass some other party. Hence, in return, he is expecting that he is adequately recouped for giving up the immediate use of his money and is allowing its use to pass to some other party. Hence, in return, he is expecting that he is adequately recouped for giving up the immediate use of his money and that there is a high degree of certainty that the payment will in fact be made. For an ideal investment , the investor has not to worry for the payment of interest and he receives his dues at fixed regular intervals . If there is no certainty of realization of rents from tenants of a real estate, that property will be far away from an ideal investment.
- Security of capital:
This is rather the most important feature as few investors will want to place their money in an investment, if the prospect of losing that money is high. For an ideal investment, the security of capital is of the highest order. In other words, there is no danger of losing the capital under any circumstances. The rate of interest on capital is inversely proportional to the security afforded by the investment. The higher the security, the lower will be the rate of interest and vice versa.
It is for this reason that government or semi-government loans are easily flooded at nominal rate of interest. In the layman’s thinking, the riskier the investment, the greater the return the investor will require . This may be due to the desire of the investor to recoup his capital as rapidly as possible by receiving a higher return on the risky investment. It is, however , mathematically not a correct way of assessing the quality of an investment , but it serves as a useful guide to most of the investors. The above-mentioned characteristics of an ideal investment may also be treated as the general principles governing the percentage of yield from investment of various types and it is possible to list other qualities which may be of importance in different situations.
As far as investment in real properties are concerned, it can be said in general that there are better chances of capital appreciation in real terms for good property investments as compared to other investments and further, good property investment afford security of income and security of capital . On the other hand of the coin, substantial expenditure will have to be incurred on the transfer of real property; it will not be possible to subdivide the real property into small units; and it will not be easy to sell the real property at short notice and it may take months or even years to realize the capital because of certain circumstances beyond the control of the seller.
In short, it can be summarised that the investment in real property will be of interest to the investor who will not require his capital at short notice; who places a high priority on security of capital especially in real terms; and lastly , who intends to have a regular receipt of income from the real property.