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Investment in Business: Tips for Investment

Investments is one of the biggest decision that an entrepreneur makes to expand their business, so it is necessary that one must consider all facts before investing.
BY Akshay Arora
Feature Writer, BusinessEx
Jun 21,2017

India has become one of the fastest growing economies in the world and from 2007-08 India is ranked as a tenth most suitable destination for investment. As per the time passes, new start-ups and various business opportunities are opening up and attracting FDI as well as domestic investors to invest in Indian businesses.

Investment can be done by buying a brand franchise, investing in on-going businesses, or invest in start-ups as they have the chance to grow at much faster speed in beginning. Investors put their own savings while investing, so they have to take investment decision after analysing all the possible outcomes that could happen in future. They have to prepare themselves for risks, in order to embrace their money from negative impact or positive impact.

General tips that investor should consider while investing in any business are:-

Review your Goals and Needs

It is necessary to understand what you really want from your investments and where do you want to invest as there are diversified sectors that offer ample opportunities. Its good to start investing after reviewing all your goals and requirements. Also, it is necessary for potential investors to understand the structure of a business and the industry in which investment happens.

Diversification and Risk Management

Investment diversification is a strategy of combining assets in such a way as to reduce the overall risk of the portfolio without lowering portfolio returns. Investment diversification can be achieved through asset allocation and investing in different sectors to mitigate risk. Risk management is one of the keys to successful investing which can be done through diversification. If you lose 50% of your portfolio, it takes a 100% gain back to breakeven. If you lose 10%of your portfolio, it only takes 11% gain to get back to breakeven. Portfolio optimisation is achieved by placing a larger percentage of high return investments in a diversified portfolio.

Return on Investment

Return on Investment is a performance analysis approach that is used to evaluate the efficiency of an investment or to compare a number of different investments. ROI helps to measure the amount of return on investment relative to investment cost. It is better to analyse returns before investing so that most suitable investment decision could be taken. For Example, if an investor pays Rs 10,000 forreal estateand then sells it for Rs 11,000 then return is calculated by taking the difference between Rs 10,000 and Rs 11,000 and then dividing that number by the cost of the investment, or Rs 10,000. The calculation is $1,000 divided by Rs 10,000 or 10%.

Business Valuation

Its a process of determining the financial value and potential of the business to grow in future which helps investors to know whether it is profitable to invest in the business or not. Common approaches to calculating business value include a review of financial statements, discounting cash flows, and business comparisons in the same industry.

Due Diligence

Due diligence is audit or investigation of potential investors to know all facts of the business like studying financial records of the company before investing. A responsible investor must take care of all the facts that might affect the investment before coming into an agreement.

Seek the Financial Help

If investors have doubts or feeling uncertain about any particular investment opportunity, then help from financial advisors can be taken. They will guide to best of their ability and is the best source to avoid any loss in investment. Investing for the first time can be challenging, exciting and stressful but with proper knowledge and guidance, its highly rewarding also.

Plan an Exit Strategy

There is a risk in investments and a high possibility of something going wrong when its time for returns, so the investor must have an exit strategy in order to minimise the risk and stay on the safer side. An investor must know when to pull out their investment and what is the most suitable time to invest in.

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