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5 Things to Consider Before Investing In Private Equity

While investing in private equity give each investment a lot of thought and care.

Anshika Bajpai |

Updated:April 30, 2019, 1:01 PM IST
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5 Things to Consider Before Investing In Private Equity
While investing in private equity give each investment a lot of thought and care.

Private equity is an alternative investment class that is made up of capital that is not listed on a public exchange. Private equity consists of funds and investors that invest directly in private companies or who invest in buyouts of public companies which results in delisting of public equity. Hence investing in private equity makes you deal with relatively concentrated portfolios and you have to make medium-term investments that are not easily reversed. Other investments like mutual funds allow you to have a diversified profile since listed companies are required to provide information to all its investors. Hence most decisions, in this case, are easily reversible.

Here’s what you should consider while dealing in private equities to make the most of it and get maximum profit.

1) Understand the investment

Do all the due diligence or ask questions to someone you trust before making private equity investments. Inquire about the investment, check if you know what you are doing and then invest.

2) How trustworthy is it?

See if you trust the company. Most importantly, check if they have in the past displayed through their actions a high level of propensity to protect their investors’ interests to minimize your chances of losses.

3) Check for weaknesses

Every investment opportunity has a few weak links that investors need to identify. Don’t believe in information that is not coming from a credible source or you might just get conned. Many Indian credit rating companies give generous rating to investor companies. There are different rating models for different companies so choose wisely.

4) Investment structure

Always ask if the investment structure hides the asset’s underlying weakness. If yes, then do not invest in it. This generally happens during a wave of defaults or a stock market crash.

5) Always have back-up options

In case you have to walk out, always have a backup option in hand. Moreover, it’s better if you spread your investment between both safe and risky products. While the safe ones make sure you don’t bear losses, the risky products are the ones that give you big profits. If no better alternative is available, doing nothing is a far better option than going for a poor investment.

While investing in private equity give each investment a lot of thought and care. If it goes well it could give you savings for a lifetime, but if it doesn’t then it can wipe a huge part of your investments.

To know more, click here.

This content has been created in association with YONO SBI.

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