Investing - Definition

Dictionary Meaning:
The dictionary meaning of the word 'Investing' stands: "Put (money) into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit".

The unsaid words:
Even though the relatively longer timeframe or permanence is not visible in the formal definition, it is an inherent part of the meaning, as opposed to saving, which is well perceived as a temporary setting-aside. Therefore, unlike savings, investments need to be left undisturbed for fairly long time.

Another unsaid element is safety - of investment or principal. What ever does not guarantee safety does not fall under the term investing. Thus highly speculative activity of trading/ day trading and margin trading in currencies, commodities and stocks do not amount to investing.

Conclusion:
Summarising the ideas, the term investing can be broken down into the following vital components or ingredients:

1. It is an Act of putting or placing
2. Money
3. Into financial instruments or property or a commercial venture
4. For a relatively longer period of time, unlike saving, which is temporary parking
5. With an intent to earn a gain or profit or income
6. Activity ensures safety of sum invested

A Man Investing Money in Stocks

Whats is Not Investing:

Short term and speculative activities of trading in currencies, commodities and shares, though disguised in the respectable term of investing, clearly do not fall under the definition of investing.

What are the Hurdles to Invest and Earn Dividends from Foreign Markets?

Following are the general reasons why people prefer to save and invest and earn returns and dividends from their own country:

1. Familiarity and ease of transaction: People are more familiar with the general economic environment, laws, taxation and so many other related aspects prevailing in their own country. Even the service providers like banks, stock brokers, insurance agents and so forth are also well versed with the systems of the native country. So it is more easy to transact in one own country.
2. Legal Restrictions/ Hurdles: Many countries, including our own India till recently, have legal restrictions in investing abroad, primarily to conserve foreign currency reserves. Even in India until a few years ago there were restrictions, which were eased. Unless revised subsequently, Indians were permitted to invest only up to US$.2.50 lakhs per annum abroad. Even when this is legally permitted, because of political sensitivities surrounding issues like laundering of black-money abroad, even genuine investors may face harassment from various authorities.
3. Costs and Minimum holdings constraints: Once I was seriously exploring purchasing shares in the US, sitting in India. It is quite possible, technically. There are online brokerage firms that permit you to buy on US stock exchanges, but there were many minimum criteria that were impractical for a small investor from India. Suppose there is a minimum trade fee of $10 per transaction it translates into a whopping Rs.670 flat for one transaction that is totally unaffordable. There are many minimum criteria like ledger folio charges, minimum investment amount and so on which make it practically unviable for small Indian investors.

Having said this, Goldman Sachs, a foreign mutual fund operating in India is offering certain limited access to overseas markets through their 'Exchange Traded Fund (ETF)' products. Please see the picture below.

Similarly, a few other funds also may be offering avenues for limited investing abroad.

In conclusion, it is not impossible for investors to make investments and earn dividends and returns from overseas markets, but a few practical hurdles restrict scale of such transactions.

How can Investors Capture the Benefits of the Economic Prosperity of a Nation?

None other than businesses and corporations invariably capture the benefits of the economic prosperity of a nation.

Why?

Because economic growth comes from more incomes in the hands of population, who in-turn armed with more income, demand more goods and services, which businesses come forward to produce and render.

If an investor wants to capture this growth, what shall he do?

Naturally, he must invest in the shares and stocks of these companies!

Will property and gold capture the full economic growth of a country?

Yes, to some extent indirectly, but corporations directly capture maximum growth, directly.

In conclusion, the right way to derive investment benefits out of the economic prosperity of a country, especially a great and stable nation like India, is through prudent long term investments directly in the shares of good listed companies after learning investing or indirectly through ‘Index Mutual funds’ or ‘Exchange Traded Funds (ETFs)’.

Can Partnership Firms Invest in Mutual Funds?

Dear Friend!

A very valuable question.

The answer to the question, "Can Partnership Firms Invest in Mutual Funds?" is an emphatic Yes. A partnership firm can invest in mutual funds, by opening a mutual fund account, as it opens and operates a bank account. 

The partnership deed, the contractual instrument that brings the firm into existence, shall expressly permit such investment. The mutual fund(s) will usually demand a certified copy of the partnership deed to ensure that such investments are permitted. The deed should also mention which partner(s) are authorised to apply for make investments in mutual funds.

With respect to questions like how to invest in mutual fund, what type of mutual fund to choose, whether it is a single lump-sum or sip investment, for how long to make and keep the investment intact, fund management costs, etcetera, the firm may seek financial advice from an honest and competent person. The firm better beware that advisors are known to be good at earning fat fees for themselves rather than earn a return for the investor.

Even though a partnership firm can make investments, one should understand that a partnership firm is not a separate legal entity like a company incorporated under the company law. Therefore, the partners are technically joint owners. As long as the firm continues to exist it will hold all assets and liabilities. In the event of dissolution of the partnership firm, the assets and liabilities are either liquidated or distributed among partners, in which case the mutual fund investments may get transferred to one or more partners or sold off.

Suggested Further Reading:

• Types of Mutual Funds
• How to Choose the Right Mutual Fund to Invest?
• How Frequent Changes to Mutual Fund Portfolio Affect Investor Interest?

In conclusion, the answer to the question, "Can Partnership Firms Invest in Mutual Funds?" is a definite yes. Partnership firms can make and hold mutual fund as well as all other types of assets as well as investments.

Thank you,

With Best Regards,

Anand

Why People Entrust Their Funds With Mutual Funds?

Full and Actual Question: Why does anyone place his/her funds in the hands of financial services companies?

Dear Friend!

I presume you ask this question in the context of entrusting our funds for investing and when you say ‘financial services companies’ you mean mutual funds, and proceed to answer the question.

Investing requires requires knowledge and experience. I would not very difficult to acquire both but requires consistent effort and time. Many cannot afford to study investing for themselves for various reasons and therefore mutual funds came into existence. Now over many years the mutual funds have acquired wide acceptance and today are managing funds to the tune of hundreds of billions of dollars globally, offering a wide variety products in the equity, debt and hybrid funds.

The problem with mutual funds is that they charge very high fees for managing the funds. ‘Exchange Traded Funds (ETFs)’ are a special type of mutual funds where the management fees are quite reasonable.

In conclusion since a majority of the people do not have the investment knowledge and experience, the entrust the job to specialists. Investment knowledge is not very difficult. If you want to learn investing, please first read the book ‘The Intelligent Investor’ by Benjamin Graham. Please also visit my blog ‘Value Investing’ and slowly and gradually you will become an expert and become rich and wealthy too. Happy learning!

Thank you,

With Best Regards

Anand

Please Note: This is almost a reproduction of the question I had answered on the website ‘Quora’, which I thought could be useful to the visitors to this blog site also.