Gold or silver: Which One is best for the Investment in the Present Market Situation!

Gold or silver: Which One is best for the Investment in the Present Market Situation!

As we are in 2012, gold and silver continues to climb and investors are questioning its future price direction. Is gold in a bubble? Have the price gains of the last decade-which beat out stocks, bonds and several other favoured asset classes- peaked? Did today's investors miss the opportunity to buy? Or is it the right time?

This is the time when another slowdown is expected to hit the market very soon and this could be the reason for an investor to understand the extreme condition of market and carefully invest their hard earn money. With the increase in cost of crude oil per barrel, government of India has increased the price of petrol and diesel which is going to impact the market with hike in the price of all. So this is the time to decide where you want to invest in gold or silver.

Gold or silver: which is preferred stock?

Investors get high returns on their investment in valuable metal like gold and silver nearly 42 percent in the row, 2009 and 2010, and 4 times in past 5 years. Return on silver (80 percent) is all most double as compared to gold (34 percent).

Low supply, high demand and safe investment decision are main reasons for the tremendous hike in the price of these metals. Silver price has been increased approximately 10 percent in first quarter of 2011.

According to the current market situation it is good to invest in these metals. Even after another slowdown is expected to hit the market, still price of silver is being appreciated compared to gold. But it is advisable to do a little research before investing your money in any of the stock whether it is silver or gold.

Selecting the right intermediaries is also a very crucial part of investment decision. So with small study you will be able to know that price of pure gold is lesser than the price offered by the chain of intermediaries, like retailers, wholesalers etc.

If an investor is making investments at regular intervals in silver and gold will able to diversify its risk and enjoy the advantage of market instability.

There is various ways by which you can invest in these metals. Some of the ways are Coins, Gold account option by Swiss banks, Gold exchange trade funds, Spread betting (predication in rise and fall of the price of these metals) and Investments with mining companies.

Accurate period of time to buy or sell

With the hint of another slowdown investors have started selling their stocks for extra earrings but with the all-time high price the stock of these metals are advisable to keep for some more time and watch the market condition carefully.

Price of US dollar and current financial condition are two most influencing reasons that affect the investor’s decision sell or not. If an investor is strong with financial condition than it is good to buy at lower price and hold it for a long period of time so whenever the market condition will improved he will be able to sell at higher price to make extra gain.

Hedge Funds

If you look at the Forbes list of American Billionaire 2011 you will find 39 of them having the job in hedge fund investment, which basically draws our attention to what makes hedge fund investment so profitable and money making mechanism. For that we need to understand what hedge fund is?

INTRODUCTION

Hedge funds refer to funds that can use one or more alternative investment strategies, including hedging against market downturns, investing in asset classes such as currencies or distressed securities, and utilizing return-enhancing tools such as leverage, derivatives, and arbitrage.

At a time when world stock markets appear to have reached excessive valuations and may be due for further correction, hedge funds provide a viable alternative to investors seeking capital appreciation as well as capital preservation in bear markets. The vast majority of hedge funds make consistency of return, rather than magnitude, their primary goal.

It can be in other words explained as A fund, usually used by wealthy individuals and institutions, which is allowed to use aggressive strategies that are unavailable to mutual funds, including selling short, leverage, program trading, swaps, arbitrage, and derivatives. Hedge funds are exempt from many of the rules and regulations governing other mutual funds, which allows them to accomplish aggressive investing goals. As with traditional mutual funds, investors in hedge funds pay a management fee; however, hedge funds also collect a percentage of the profits (usually 20%).

.

STRUCTURE

 The portfolio is managed by the investment manager, a separate entity which is the actual business and has employees.

As well as the investment manager, the functions of a hedge fund are delegated to a number of other service providers. The most common service providers are:

Prime broker – Prime brokerage services include lending money, acting as counterparty to derivative contracts, lending securities for the purpose of short selling, trade execution, clearing and settlement. Many prime brokers also provide custody services. Prime brokers are typically parts of large investment banks.

Administrator – The administrator typically deals with the issue of shares, and performs related back office functions. In some funds, particularly in the US, some of these functions are performed by the investment manager, a practice that gives rise to a potential conflict of interest inherent in having the investment manager both determine the NAV and benefit from its increase through performance fees. Outside of the US, regulations often require this role to be taken by a third party.

Distributor – The distributor is responsible for marketing the fund to potential investors. Frequently, this role is taken by the investment manager.

 Facts about hedge funds

• Estimated to be a $2 trillion industry and growing every year, with approximately 10,000 active hedge funds.
• Includes a variety of investment strategies, some of which use leverage and derivatives while others are more conservative and employ little or no leverage. Many hedge fund strategies seek to reduce market risk specifically by shorting equities or derivatives.
• Most hedge funds are highly specialized, relying on the specific expertise of the manager or management team. 
• Performance of many hedge fund strategies, particularly relative value strategies, is not dependent on the direction of the bond or equity markets -- unlike conventional equity or mutual funds (unit trusts), which are generally 100% exposed to market risk. 
• Many hedge fund strategies, particularly arbitrage strategies, are limited as to how much capital they can successfully employ before returns diminish. As a result, many successful hedge fund managers limit the amount of capital they will accept. 
• Hedge fund managers are generally highly professional, disciplined and diligent.
• Their returns over a sustained period of time have outperformed standard equity and bond indexes with less volatility and less risk of loss than equities.
• Beyond the averages, there are some truly outstanding performers.
• Investing in hedge funds tends to be favoured by more sophisticated investors, including many Swiss and other private banks, who have lived through, and understand the consequences of, major stock market corrections. Many endowments and pension funds.

CONCLUSION

Hedge funds tackle the traditional fund sector with a strong challenge. They have attracted more attention and media interest than the traditional sector, they have drawn heavily on the pool of talented fund managers due to their lucrative compensation packages, and they have attracted a very strong (but still proportionately small) flow of capital. There is also some evidence that hedge funds have outperformed on average in terms of their risk-reward profile, although this evidence is not yet conclusive.  At a minimum, hedge funds have brought innovative investment strategies and a new sense of excitement to the investment community.

Infrastructure development and financing : Its implication-Growth Perspective

It is widely acknowledged that one of the major sector  in any country is infrastructure sector in terms of growth. The question lies why infrastructure? And why not any other sector?. These are certainly the debatable issues when it comes to allocating the major part of the fiscal budget to this sector. There are different views from different players when it comes to investment in infrastructure sector. In developing countries like India where there is a lot of  potential for development, the infrastructure  plays a key role in paving the path to country’s growth, so it is important to develop a proper mechanism for  financing the infrastructure projects be it power and gas, hospitals, roads, education etc. Investment in infrastructure is one of the costliest affairs and owing to the high cost it is very crucial to decide which sector within the infrastructure sector should the investment be made so that the project generates enough cash flows to cover up the cost of the project.

The government plays a two facet role i.e. of investor as well as the financer of the infrastructure projects and it is also interesting to know how this investment cum finance would generate the cash flows so that the cost incurred  by the government in the financing of its own investment gets covered up. If a government finances a particular project it either does it partially, fully or it outsources it through a mechanism called PPP. Because of high cost involved the financer of the project estimates the cash flows carefully so that a decision criteria is formulated using appropriate “Capital Budgeting Technique” and the most popular technique which is widely used in practice is NPV( Net Present Value ) on the basis of which a project may be accepted or rejected. Although it does not give a relative comparison between the two or more projects in terms of its cost but it gives the investors decision basis by comparing the present value of future cash inflows and the cost of project.

 The major issues that arise in project financing are the high cost and high degree of risk involved in it which is contingent on various factors such as the inflation and the market conditions prevailing in the future. So in order to minimize the risk one can share risk and this is where PPP model (public private partnership) comes into picture in which the government and one or more private sector company enters into the business venture for the mutual benefit of government , the private company and public who will be utilizing the benefits out of the investment. Typically, a private sector consortium forms a special company called a "special purpose vehicle" (SPV) to develop, build, maintain and operate the assets for the contracted period. In cases where the government has invested in the project, it is typically (but not always) allotted an equity share in the SPV.  It is the SPV that signs the contract with the government and with subcontractors to build the facility and then maintain it. So we can say that this model helps the government to enhance the quality of infrastructure through outsourcing its work to private sector by way of ventures which transfer the risk and also reduces the huge project cost.

The roadmap to the growth of Indian economy as a whole is dependent on how the infrastructure is developed and what benefits public derives from it. Infrastructure Sector Growth Rate in India’s GDP has been on the rise in the last few years. The Growth Rate of the Infrastructure Sector in India’s GDP has grown due to several reasons and this in its turn has given a major boost to the country's economy. The Growth Rate of the Infrastructure Sector in India’s GDP increased after the Indian government opened the sector to 100% foreign direct investment (FDI). This was done in order to boost the Infrastructure growth  in the country. The result of opening the sector to the private sector has been that Infrastructure Sector Growth Rate in India’s GDP has increased at a remarkable rate. The example that we can see with reference to this model is the Terminal-3 of Indira Gandhi International Airport, Delhi which was built under PPP.

 So it is crucial for the government to decide the appropriate model of financing or investing in infrastructure as it directly impacts the infrastructure development rate which in turn reflects the GDP growth rate.