By Prateek Toshniwal, Financial Advisor, Ivy Growth Associates
The Indian economy has seen a surge in the startup foundation over the last few years. It is being speculated by the trade analysts that 2023 is all set to witness a drastic rise of the private investment sector along with a multifarious increment in the corporate profitability. This phenomenal scenario will attract major investments in the following year. There are numerous financial institutions and individual financiers or investors called Capital Investors who make significant investments to boost the startups.
The investments made by Retail Investors in Mutual Funds, Stocks, Bonds, Exchange Traded Funds (ETFs) etc are also an integral part of the investment ecosystem as they impart financial stability to the overall investment paradigm. It is crucial for the capital and retail investors to realise the current state of the targeted industry along with the future potential to generate a profitable ROI (Return on Investment) and ROTI (Return on Time Investment) to reap magnificent revenues in the following year.
However, the investment industry is dynamic in nature. Factors like the financial navigation of the economy, personal financial roadmap, risk evaluation, a rewarding amalgamation of investments, risk assessment etc. are being deemed as the major aspects which will impact the investment ecosystem of India in 2023.
Selection of appropriate domain or industry for investment
The most important factor that will influence the investment sector in 2023 is the proper selection of the mode or industry of investment. For instance, investing in Mutual Funds will have a different ROI from the investment made in an IT startup. The investment made in a successful portfolio fetches an effective internal rate of return of approximately 20 per cent to 30 per cent. Angel investors who invest copious amounts in funding often derive a surplus in profits. SEBI (Securities & Exchange Board of India) manages the angel funding scenario in India under AIFs (Alternative Investment Funds Regulatory Framework). The credible market analysis portrays that industries like IT, Healthcare & Pharmaceuticals, Edtech, and Food & Beverages have the potential to generate 25 per cent more revenue. Thorough knowledge of the domain can ascertain high profits for angel investors.
The contribution of the Retail Investors in the development of the investment landscape and overall economy of India is remarkable. The retail investors provide capital to various businesses and corporations. They tend to invest capital in the businesses for a longer period of time as compared to the institutional or conventional investors. It is predicted that retail investors will contribute to the progression of the startup ecosystem in 2023 by making eminent investments. Evidently, the tier-2 and tier-3 cities of India have lately emerged as the prominent hubs of retail investments. Retail investors in the current times have demonstrated a preference for portfolio diversification with a significant equity component. They are aware that making equity investments is essential to the creation of long-term wealth along with a well-balanced portfolio which reduces the effects of market volatility. The investors now value the importance of investing in markets for long-term wealth creation and this may lead to the exponential growth of the retail investment sector in the following year.
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Varied Investment Portfolio
It is always wise to mix & match or to bifurcate the investments. It is a secure, safe, and smart choice to invest wisely a stipulated amount in 2 to 3 different sectors rather than allocating a huge amount of investment to a particular industry. One of the primary principles of business risk management directs investors and venture capitalists to make small multiple investments rather than a big leap. Having reliable funding partners is also a wise step. The core idea is to avoid uncertainties and to keep the risk of losing a substantial amount of capital at bay.
The Power of Compounding
Compounding is a powerful investment concept that will work wonders for the angel investors in 2023. A smart Compounding involves revenue generation and earning returns on both, the original investment amount or capital and on the previous profits too. However, for Compounding to work proficiently, an investor needs to reinvest the returns back into the capital account. For example, the allocated investment of $2000 in a profitable venture can earn a return rate of 12 per cent. Real Estate Investment Trusts (REITs), Money Market Accounts, Dividend stocks, Bonds & Bonds Funds are some of the vital options for Compound Investments. Compounding has the calibre to transform investments into monetary wealth over a while, providing an early investment in the same.
Market, Competitors, Business Model Analysis
It is advisable for angel investors to thoroughly scrutinise the investment-intended business models, market competition and revenue return rates to mint extra profit in the following year. A thorough analysis of the industry always helps investors to understand the significant factors like the size of the market aimed for investment, the viability of products/services/industries to generate revenues, and the hold of potential competition in the market. Any ambitious or seasoned investor must evaluate the industry business model to comprehend the company’s monetisation strategy or cash flow model. The clarity on the monetisation model can assist an investor in allocating the total investment amount which exponentially will impact future revenue generation.
Knowledge of Investment Rounds
The clear understanding of the expected stock holding percentage of the company is important before making investments. To calculate the same, an investor must study the pre-money valuation and the total round of investments. The total of the mentioned features divided by the intended investment amount defines the holding percentage of an investor in the company. It is a good practice for investors to know about company shareholders too.
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India is the 3rd nation with the maximum number of recently established startups and unicorns. With such a prominent rise in the international startup landscape, the investment industry in India will flourish multifariously. The retail investors are often deemed as the backbone of businesses. The contribution of investors to the numerous industries, commercial ventures and enterprises will play a vital role in the overall progression of the nation’s economy in 2023.