Investments are both important and useful in the context of present day conditions. The following points have made investment decision increasingly important.
- Planning for retirement
- Interest rate
- High rate of inflation
- Increase rate of taxation
- Investment channels
1. Planning for retirement:
A tremendous increase in working population, proper plans for life span and longevity have ensured the need for investment decisions. Investment decision have becomes significant as working people retire between the age 55 and 60. The life expectancy has increased due to improved living conditions, medical facilities etc. The earnings from employment should, therefore, be calculated in such a manner that a portion should be put away as savings. Saving from the from the current earning must be invested in a proper way so that principal and income thereon will be adequate to meet expenditure on them after their retirement.
2. Interest rate:
The level of interest rates is another factor for a sound investment plan. Interest rates may vary between one investments to other risky and non- risky investments. They may also differ due to different benefit schemes offered by the investments. These aspects must be considered before actually allocating any amount. A high rate of interest may not be the only factor favouring the outlet for investment. The investor has to include in his portfolio several kinds on investments. Stability of interest is as important as receiving a high rate of interest.
3. High rate of inflation:
In the conditions of inflation, the prices will rise and purchasing power of rupee will decline. On account of this, capital is eroded every year to the extent of rise in the inflation. The return on any investment should be regarded as positive, when such return compensates the effect of inflation. For maintaining purchasing power stability, investors should carefully plan and invest their funds by making analysis.
- The rate of expected return and inflation rate.
- The possibilities of expected gain or loss on their investment.
- The limitation imposed by personal and family considerations.
4. Increase rate of taxation:
Taxation is one of the crucial factors in a person’s savings. Tax planning is an essential part of over all investment planning. If the investment or disinvestment in securities in made without considering the various provisions of the tax laws, the investor may find that most of his profits have been eroded by the payment of taxes. Proper planning could lead to a substantial increase in the amount of tax to be paid. On the other hand, good tax planning and investing in tax savings schemes not only reduces the tax payable by the investor but also helps him to save taxes on other incomes. Various tax incentives offered by the government and relevant provisions of the Income Tax Act, the Wealth Tax Act, are important to an investor in planning investments.
Income is also a factor in making a sound investment decision. The general increase in employment opportunities which gave rise to income level and avenues for investment, have lead to the ability and willingness of working population to save and invest such savings.
6. Investment Channels:
The growth and development of the country leading to greater economic activity has led to the introduction of a vast array of investments. Apart from putting aside savings in savings banks where interest is low, investors have the choice of a variety of instruments. The question to reason out is which is the most suitable channel? Which media will give a balanced growth and stability of return? The investor in his choice of investment will have to try and achieve a proper mix between high rate of return and stability of return to reap the benefits of both. Some of the instruments available are corporate stock, provident fund, life insurance, fixed deposits in corporate sector, Unit Trust Schemes and so on.