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26 Feb 2021

A Peek Into the Indian Investment Ecosystem

Nisha Ramesh

The investment landscape in India is vast and complex. There is so much to choose from, so many authoritative bodies, tax rules that overwhelms prospective new investors even before they start their financial journey. We are often caught up on earning returns that we tend to ignore the basics of investment.

Whether you are new to investing or already has some experience dabbling in a few investments, it is good to understand how India’s investing works. It personally took me a few years to understand the role of each player. Still, once I did, it completely changed my perception of how to invest. 

Here, I have attempted to simplify the investment ecosystem of our country. I hope this article can give you the clarity I gained over experience. 

Types of Investors

A person or organization who puts their money to work for them by investing in an asset directly or indirectly to earn returns is called an investor. They can be classified as:

  • Retail Investors: Also known as Individual investors, they are non-professional investors who buy assets such as stocks, bonds, cryptocurrencies etc., for their own portfolio and not for any other organization. In simple terms, people like you and me who invest a part of their income into investments are known as retail investors.
  • Institutional investors: They are often organizations or companies that invest in assets on behalf of their clients or members. Credit unions, banks, mutual funds, hedge funds, corporations etc., fall into this category. For instance, Tesla, Microstrategy, Square etc., are some institutional investors of Bitcoin. 

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Types of Assets

Assets are the investment vehicles in which market players invest to earn a return on their investment. It can be broadly classified into two:

  • Traditional Assets 

They include the “well known” class of assets that a typical investor would look for investment. It includes the basic categories such as equities, bonds, Fixed income etc. Let us get a brief overview of some traditional assets:

  1. Equities – are also known as stocks or securities. Investors can buy shares of a company in return for a stake in its ownership and proceeds. It is regulated by the Securities Exchange Board of India (SEBI). You can buy and sell shares via a stock exchange or through a broker. 
  2. Fixed income – are assets that give a predefined or static return over a specified period. Fixed deposits, savings accounts, post-office deposits are some fixed-income investment options available in India. 
  3. Bonds – are loans offered by large corporations to raise money from the public. Investors buy bonds at face value for a fixed tenure. The issuer pays a percentage of the principal amount as periodical interest at fixed or adjustable rates.
  4. Mutual Funds – are a pool of funds collected from various investors by an Asset Management Company (AMC) to invest it in a diversified portfolio of stocks. The investors get a unit of the Mutual Funds, and returns on the stock are shared accordingly. 
  • Alternative Assets

These are financial assets that typically fall outside the category of traditional investments mentioned above. The value of these assets is not in line with the value of conventional assets. The economic situation of the country does not guide meaning the price of these assets. Alternative investments tend to behave differently than traditional assets. So, adding them to your portfolio can provide broad diversification to your portfolio. Some of the popular ones are:

  1. Precious metals – include valuable metals like gold and silver. It is well known that these metals are rare and available in limited quantities. Hence, their value is high. Investors seek to buy precious metals as a hedge against inflation and to diversify their portfolio risks. Gold is one of the most sought out assets and has been a strong competitor to other traditional investments. 
  2. Real Estate – includes assets such as land, buildings and residential/commercial properties. Investors look to invest in real estate for the long run as land value tends to appreciate multifold over the years. However, it requires considerable capital investment. 
  3. Cryptocurrency – are digital currency that can be used as a medium of exchange and as a store of value. Cryptocurrencies are a new asset class introduced in 2009. Since its inception, cryptos’ worth has grown millionfold and have replaced gold as the top-performing asset class. There are over 5000 cryptocurrencies currently in circulation, and Bitcoin is the most popular of them all. 

Facilitators

These are companies or organizations that facilitate the purchase and sale of assets between investors. They provide a physical or digital platform or infrastructure to facilitate the trading of assets such as stocks, mutual funds, cryptocurrencies etc. 

  • Stock Exchange – is where you can buy/sell shares during specific hours of business days. There are two major stock exchanges in India: the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). 
  • Asset Management Companies (AMC) – create and manage various mutual fund schemes for investors. They offer mutual funds with similar objectives. There are 44 AMC’s in India, and some popular ones are HDFC Mutual Fund, SBI Mutual Fund etc. 
  • Cryptocurrency Exchange – is a platform that facilitates investing and trading of cryptocurrencies. Currently, cryptocurrency is not fully regulated in India. And hence such exchanges are run by private self-regulatory companies. Many crypto exchanges in India, like CoinSwitch Kuber, offer retail investors a platform to buy cryptocurrencies. They operate 24*7 throughout the year. 

Bottom Line

The Indian Investment ecosystem is as vast as an ocean. This article is meant to give you a peek into it.

Though it is not exhaustive, it explains most roles and players in our country’s investment landscape. And I hope you found it helpful.

Happy Investing!

[su_note] KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. [/su_note]

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

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Nisha Ramesh

Content Writer

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