Where Should You Invest?
Once you understand why you should invest, the next obvious question is where to invest and how much return you can expect from your investment.
When it comes to investing, you should choose an asset class that suits your personal risk and return patterns.
An asset class is a category of investment with certain risk and return characteristics. Following are some of the popular asset classes:
- Bonds
- Shares
- Real estate
Bonds
These are investable products with very limited principal risk and returns are paid to the investor in interest based on the specific bond product. Interest payments can be quarterly, semi-annual or annual. At the end of the deposit term (also called the maturity date), the equity is returned to investors.
Typical fixed income investments include:
- Bank term deposit
- Treasury bonds: The bonds through which the government borrows for more than one year are called government bonds or treasury bonds. In Bangladesh, there are 251 outstanding treasury bonds right now having their tenures ranging from two to twenty years. The government is paying 2%-15% annual interests against the face value of BDT 100 apiece of the bonds through two half yearly coupons each year. The longer the tenure the higher the interest rates are. A large number of treasury bonds are yielding more interest than what bank deposit returns nowadays. This created a lucrative investment opportunity for the interest earners as the government bonds across the world are treated the safest investment tool amid the fact that the state, usually, is the last entity to default on debts.
- Corporate bonds: A corporate bond is a type of debt security that is issued by a firm and sold to investors. The company gets the capital it needs and in return the investor is paid interest payments at either a fixed or variable interest rate. When the bond expires, or "reaches maturity," the original investment is returned.
Shares
Investing in shares involves the purchase of shares in publicly traded companies. The shares are traded on both the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE).
When an investor invests in stocks, unlike in fixed income products, there is no underlying guarantee. However, as a trade-off, equity returns are very attractive. Bangladeshi equities have returned close to 14-15% CAGR (Compound Annual Growth Rate) over the past 15 years.
Identifying such investment opportunities requires skill, effort and perseverance.
You may also be interested in the fact that long-term earnings (more than 365 days, also known as long-term capital gains) are completely exempt from personal income tax. This is what makes investing in stocks even more attractive.
Real estate
Real estate investments include transactions (buying and selling) of commercial and non-commercial land. Typical examples are transactions with plots, apartments and commercial buildings. There are two types of income from real estate investments: rental income and capital gains from investment amount.
Transaction procedures can be very complex, including due diligence on documents. The cash costs of investing in real estate are usually quite high. It is difficult to comment on this, since there are no official indicators to measure the profit that real estate brings.
