High return on Investment

Table of Contents

DISCLOSURE: The information contained on this website and the resources available for download through this website are for educational and informational purposes only. The stocks or any investment products discussed on this website are the research and personal views of the authors. It should ‘not’ be considered as any kind of buy, sell, or any advisory/recommendation. Please do your study or take the help of your financial advisor before investing.

Sharing is Caring

Share on facebook
Facebook
Share on twitter
Twitter
Share on whatsapp
WhatsApp
Share on email
Email
Share on telegram
Telegram
Share on linkedin
LinkedIn

How to get a High Return on Investment

Where to invest money to get a high return on investment in India?

One day I was talking with my group of friends. We were gossiping on the topic of investment plans and how to get a high return on investment. People were curious to know about it. They wanted quick answers to questions like where to invest for high income.

There is no particular answer when asking about high income through investment. Why? Because the high return on investment always comes with the risk of loss. One should not invest without knowing the risk of loss and how to do it.

Which is common knowledge you need to know? These are:

Even if you are a beginner, always try to give your best to your investment. How to do it? By investing in what you already know. Example: If you want to invest in stocks, do as Warren Buffett did. If you want to invest in mutual funds, do it like Jack Bogle. Even if we can imitate 10% of these people, our investments will be fine.

Long-Term Investment is the key to success. All high-risk investments are risky. One of the easiest ways to deal with the problem is to invest for long periods. At least 3 to 4 years. Example: Buy a quality stock, then stick for 3+ years.

Diversification is another way to reduce your risk. In general, we protect ourselves from investing all our money in one type of investment. Instead, we invest in different, unrelated options. Such that FD, Mutual Fund, Debt, Stocks housing, gold, etc.

Learn to estimate the fair value of any particular thing. When it comes to high return on investment, nothing is more important than buying at reasonable prices. Why? Because most of the time, quality things traded at overvalued prices (higher than their fair value). As an investor, we need to know how to calculate fair value.

THE CONCEPT OF RISK PREMIUM

High return on Investment
High return on Investment

When we say high return, what does it mean? To understand this, we need to know two important words 1. Risk-free 2. Risk premium.

What is Risk-free? The only income that any entrepreneur can generate is by investing in debt. Example: Bank FD.

What is the Risk Premium? The income we receive more and more than the risk-free is considered to as a paid risk. How to get a Risk premium? By investing in risky investment options. Examples: Equity, Mutual fund, Commodity, etc.

The higher the risk paid, the higher the total income.

Therefore, the method for high return looks like this:

HIGH RETURN = RISK FREE RATE + RISK PREMIUM

Once we understand the need for “how to invest?” and the concept of Risk Premium, We are ready to learn about some high-cost investment options.

We will try to look at a few of these high-risk financing options from the optics of their potential to provide a high return.

1. REAL ESTATE PROPERTY (BEFORE LAUNCH)

Risk Free Rate   Risk Premium   Holding Period

7.0%        6%        3+ Years

Real estate Investor plans to buy premium properties at pre-sale rates. At that moment, even reputed construction/development companies are ready to offer low prices. If such properties are retained for a period such as 3-4 years, total revenue can be made in the middle of 13% p.a. (risk premium of 6%).

Once the property is ready to move, one can easily assume a high-value appreciation. It is not wrong to say, in 5-6 years the value of the property will double. In cities like Bangalore, Mumbai, Delhi, Pune, rising prices are unusual.

2. VALUE STOCKS

Risk Free Rate   Risk Premium   Holding Period

7.0%        8.0%        3+ Years

By investing in stocks that trade at low prices, one can earn high returns. In our stock market, there are more than 5,000 Stocks are listed. Of all these stocks, only about 10% are worth considering as good for investment. Good and quality companies trading at attractive prices are good for investment.

Attractive prices mean good stocks are trading at a price below their fair value. An investor who knows how to calculate the approximate value of a product can make a good investment decision in the stock market.

3. MID CAP FUNDS

Risk Free Rate   Risk Premium   Holding Period

7.0%        13.0%      4+ Years

Typically, people prefer to stay away from small and lesser-known companies. If we want to make big money, we can’t ignore it. But the problem with such small companies is that most of them are of low quality.

Therefore it is best to invest money in small companies through mutual funds. There is a well-established mutual fund that invests small and mid-cap stocks. Over the last five years and beyond, the returns of those funds has been quite impressive.

4. REIT

Risk Free Rate   Risk Premium   Holding Period

7.0%        7.0%        7+ Years

REIT is a new investment vehicle in India. EMBASSY OFFICE PARKS REIT IPO closed only on 20th-Mar’19, and it got itself listed in BSE and NSE on 1st-April’19.

If we can ignore the limitations of the lot size of 400 no’s, REIT has the potential to provide an amazing return for its long-term investors. For the average person, there is only one way to invest in real estate. Its downside is, investing in highly desirable real estate requires a lot of money (like Rs.25 + Lakhs).

But in the case of REIT, the required expenditure (currently) is much lower (as Rs.1.5 Lakhs shown above). This will motivate more investors to join the real estate business (as they do in real estate). Over the next 6-7 years, REIT is expected to flourish in India.

5. INDEX ETFS

Risk Free Rate   Risk Premium  Holding Period

7.0%        6.0%        3+ Years

Index ETFs are made to give moderate return over a period of time. But I will discuss a trick which will help you to make higher returns.

On average a Sensex based ETF has generated a return of 13% p.a. But using my trick, one could achieve 15% p.a. What is the trick?

Whenever the NAV of the Index ETF drops to 1.5-2% or more (per day), buy the ETF. This practice will continue for more than another 3-4 years. Continue to build ETF units in this way. This process can provide better return on investment (at least 2% +) more than a standard investment policy (SIP).

Conclusion

A high return on investment is not risk-free ever. That is why, before investing, one has to build adequate knowledge about investing.

Once you are done with basics, it is necessary to pick the right investment option for you. There are many people who make a good amount of money from Equity, derivatives, commodities, etc. These are the right investment options for them, but it may not work for me and you.

Always deal with those investment vehicles about which you have sufficient knowledge. I have mentioned five such investment vehicles in my blog post.

Do you have some ideas of your own about high return generating investment alternatives? Please comment down for us.

Also Read

Sharing is Caring

Share on facebook
Facebook
Share on twitter
Twitter
Share on whatsapp
WhatsApp
Share on email
Email
Share on telegram
Telegram
Share on linkedin
LinkedIn

Leave a Comment

Your email address will not be published. Required fields are marked *

Follow Mastering Investment