Investment is the most important factor of finance. Every individual who has money looks forward to invest it somewhere so that he may materialize the benefit hidden in his non invested funds. However, before going into the exact details of the topic, first I would like to overview some of the basic concepts and then link these with the given topic. I would like to proceed with the most fundamental question that is what is investment.

Deputy Manager Marketing,
Khanani and Kalia International (Pvt.) Ltd.
Oct 30 - Nov 05, 2000

Investment defined:

Investment concept is generally taken as buying of shares or existing property or title, security, bonds of any company. But in the theory of income, investment is defined as an addition to the nation's physical stock of capital including building of new factories, new machines, finished goods etc. that is to say that any addition to the inventories as well as fixed capital is called investment.

What do the investors do?

The investors simply add to the nations physical stock of capital by giving up their savings and making them available for various projects.

What motivates the investors to invest?

Obviously, the investors are mainly motivated to use their money for investment projects due to the money that they get as a reward commonly called return on investment. This return is the main factor that stimulates the investors to invest. Since money is a commodity, that has future value, which in most of the cases keeps on increasing with due passage of time.

Types of investment:

The investment is mainly of the following types:

1) Ex-ante, planned, anticipated or induced investment.

2) Ex-post or non-planned.

3) Private investment that is the investment made by the individuals purely for monetary returns.

4) Public investment made by the government for the betterment of their nation.

Since my topic relates to private investment, that is why I would analyze this type in more detail.

Private investment:

Profit expectations seem to exercise a major influence on investment decisions of the businesspersons. Every investor expects profit from his investment. Higher the profit margin, higher is the motivation to invest and vice versa. Well, the investments can be made in two forms:

By investing in the financial markets by buying certain securities, shares, bonds or depositing in the banks.

By investing in the development projects like forming new companies, establishing new businesses etc.

Now as far as the question that where the money should be invested, can be answered by breaking up and analyzing separately each principal area in detail.

Investments in the capital market:

An investment in the capital market pays interest in return. The investors can make investments in the following principal areas:

Investments in the money market:

Investments in the money markets specially the foreign exchange market is one of the major investments in the capital market. Usually, the investors buy the currencies when they are low and sell them accordingly when they are high and make profits. This is usually a game of speculation. Usually for this purpose, some intermediaries are involved whose job is to provide update information to their clients relating to when and which currency should be bought and sold respectively. In Pakistan, during the last couple of months, this activity was on the peak and many individuals made supernormal profits. However, this is not the case always. The margin of profit in this business is quite low as the currencies are bought and sold in close margins, therefore investments in this field should be done for long-term periods if the return has to be realistically realized. The money market involves a risk and uncertainty factor. However, if good consultation services are available, then big profits are expected and the investments can really be fruitful.

Investments in the stock exchange:

Stock exchange as every body knows is one of the most important capital formations markets in a country. Its operation is quite similar to that of the money market. The investors invest by buying the shares of any of the trading company in the stock. The investors, however must be very careful in making such investments under the prevailing conditions of the stock exchanges of our country. The investments can be short as well as long term. Those shares that are low are usually bought and are sold when they gain some better value. Apart from the profit in this manner an individual who buys the shares of a company becomes a part and parcel of the company whose shares are bought and thus he gets an opportunity to earn his share in the annual profit earned by the company and also the dividend declared at the end of a good fiscal year. Thus investment in the stock can be more profitable but the risk factor will always be present.

Investments in the saving certificates:

One of the great advantages of the saving schemes offered by the government is their security. The money invested remain secure and the return is definite as it is paid on a fixed rate of return by the government. It is an important source of accumulating funds by the government. Although the government has recently reduced the rate of interest but indeed it is a safe, secure and permanent source of return on investment by the investors specially who are retired, disabled or unemployed. One can think to invest in these certificates if he/ she wants to earn some money over their savings.

Investment in bonds:

The bonds are one of the most important sources of generating funds not only for the companies but for the governments as well. The corporate and the government bonds usually offer a fixed rate of return to the investors. But the bonds are long term maturities and thus the funds may be blocked till maturity. However, the bonds are another good source of investing money in safe terms and of earning handsome amounts in the form of interest.

Investments in the banks:

Banks as every one knows offers various investment opportunities to their customers to motivate them to invest and increasing the volume of the deposits that ultimately result in the overall economic development of a country. The banks are the most important part of capital formation in a country and the capital market. The higher the deposit of the banks, the higher is the capital in a country and vice versa. The banks mainly motivate the investors because they can not only avail the attractive rate of returns but also the services like debt financing, loans advancement, L.C.'S, deposits, advisory and agency services etc. The banks pay interest to their customers on quarterly, semi-annually and annual basis on a predetermined rates so the risk factors involved are near to zero and thus the pay back on the investments are surely to be materialized.

Investments in various development projects:

Keeping in view the present economic and socio-political conditions of Pakistan and the opportunities of earning attractive returns, the following investments are fruitful:

Information technology:

IT is one of the most rapidly growing and fast developing business area in the modern era. Most of the nations of the world are making millions of dollars by exploring the new dimensions of this business. Unfortunately, due to lack of adequate investment, Pakistan has not been able to fully exploit the market which has millions of dollars hidden which are awaiting only for good investors to come in, make handsome investments which are sure to give them the best returns. Since Pakistan is lagging far behind in this major investment market, the government is also giving many attractive advantages to the investors like five years tax holiday, reduction of Internet charges, assistance and consultation by the ministry of Science and Technology etc. So it is the high time for the individuals to come forward and make investments because intelligent investments always pays back and always multiply with the passage of time and same is the case with IT. Hence the individuals who are waiting for some good investment opportunity and attractive returns on their invested money, should not wait much and come forward to exploit this trillion world market.

India our neighbour is the largest software-developing nation of the world and their scale is even expanding. Since Pakistan has a lack of software engineers therefore, it is falling short of this business. However, hopes have risen that if due consideration is given, the investors are going to be encouraged. Mainly, the direction of the software business is exports, therefore high profits are expected. The investors have a good opportunity to earn handsome money and at the same time help to expand the software industry in Pakistan. The individuals who are looking forward to make some sort of investment may have a very good opportunity in the software business to make money.

Export based enterprises:

As every body knows, Pakistan has an unfavourable balance of payments which is persisting for the last couple of years mainly due to falling of exports. The exports of our country are mainly falling due to tough international competition, bad quality of the exported products, non supportive moves taken by the governments and mostly due to lack of interest by the local investors to invest their money which may help the local producers to produce more and earn foreign exchange. Exports have been one of the most neglected areas not only by the governments but also by the individuals. Nevertheless, the rays of hopes are still there only if considerable investment comes in. In this regard, the role of the government is very necessary because only if exporter's confidence is rebuilt, only then they will motivated to invest. So the investors may have very good earning opportunities in terms of foreign exchange which will not only help to increase the exports of the country but also the domestic production which will ultimately result in creating new job opportunities for the locals and thus controlling the rising poverty in the country.

Oil and gas industry:

Vast earning opportunities are present in this area. Pakistan is such a country, which is gifted with rich mineral resources which just need to be exploited. This has not been extensively done yet due to the lack of investment. In Pakistan, only 25 companies are working in the oil and gas exploring industry. The government has been paying heavy foreign exchange to avail the services of the international companies. Such foreign exchange can be reserved if our own people may take a forward step to invest and train their own people. We can take the example of Kuwait, Iran, Iraq and other Middle East nations who have become the giants in this industry all over the world. Excellent opportunities are hidden for the investors to make money and get attractive return on their investments.

Textile sector:

Just a couple of years ago, Pakistan was one of the major producer of textiles in the world. But unfortunately, during the last few years, the production and the returns from this sector have fallen considerably. One of the major reasons is of course the investment. The high cost of adaptation has restricted many of the individuals to invest accompanied by the non supportive policies by the governments. Still the picture has not worsened yet. If adequate investment comes in, Pakistan can again recover it's lost share. This investment is specially needed for adopting the new technology both for production and administrative purposes, training of the labour, importing the latest equipment, revival of the sick units. All these objectives can be met only when good investment is available and in return the investors are guaranteed to get lucrative returns.

I have analyzed the principal areas where the individuals can invest and earn profits i.e make the correct utilization of their money. In addition to these, there are many other attractive opportunities, which are waiting for the decision to invest them in the right places. Thus the above mentioned preferable areas are the answer to the question.