When it comes to investments, the year 2022 ended on a bittersweet note, becoming the sixth-most volatile year since the Great Depression of 1930 (Goldman Sachs). When it comes to advising for funding and investments, we at Compliance Calendar find our startup clientele wishing to generate favourable returns but often being unsure how to. Whether it’s building a steady stream of working capital to fulfil your large and small orders, investing in securities or finding enough capital investment to expand your manufacturing base - we have got you covered. In this special early year edition, Compliance Calendar brings to you the best financial hacks to explore in 2023.

Top Trends in the Financial Space - 2023

The year 2022 was a particularly unpredictable year - the Russia - Ukraine war intensifying, rising interest and inflation and large layoffs, all contributed to it. However, despite the volatility, the financial space in 2022-23 has been buzzing with the arrival of new-age financial avenues. These are Real Estate Investment Trusts (REITs), digital gold, direct equity or stock and mutual fund baskets, etc. With these newer instruments, there are significant changes in risk appetites in investors. So what should you invest in, as a startup founder for better returns? We explore these, alongside traditional investment products (like Fixed Deposits) against the backdrop of convenience, tax efficiency, flexibility and most importantly, returns.

What are large-caps, small-caps and mid-caps?

For a new investor entering the stock market, it’s important to know the differences between large, mid and small caps. The word cap, stands for market capitalization. A large cap company would be a big business house which has a market value of its share exceeding INR 20,000 crores. Mid-caps are companies having a market capitalisation between INR 5000 crores - INR 20,000 crores. Small caps are smaller companies with a below INR 5000 crore market cap. Naturally, the investments in a large cap would be stable, and thus less risky. However, the prospects for growth are more in medium and small cap investments.

Traditionally, large caps have done well in India. This was also the preferred option for investors to safeguard themselves from volatility in the market in 2022. It is speculated by experts that 2023 could witness a boom in small and mid caps.

Systematic investment plans for equity and REITs

Due to the recent rise in ease of investing, thanks to multiple apps - Systematic Investment Plans (SIPs) are now preferred by over 55% of all retail investors. India was one of the few stock markets in the world that delivered favourable returns in 2022. Experts suggest SIP over other equity investment schemes for the following reasons:

In addition, Equity Linked Savings Schemes also provide tax advantages to an individual investor. While investigative reports like the Hindenburg, placing allegations of short selling and financial misrepresentation on Adani Enterprises have blurred the high investor sentiment that the year 2023 began with, the outlook for the overall equity investments in large and mid-caps is still positive.

Similarly, Real Estate Investment Trusts is an investment that pools small amounts from investors to fund a larger real estate project. It allows individual investors to contribute to, and earn from large scale projects in housing, construction or similar projects.

Debt and Debt Funds - a stable, steady but low return avenue in 2023

As a loan-taker: Debt, or loans are a preferred option for businesses assured of steady income. If your business is at a very early stage, we advise waiting till having certainty of an assured inflow of funds. Accounting for regular interest costs could be a burden in the initial stages of the business.

As an investor in debt funds: In 2022, debt funds gave poor returns, averaging only 2-4 percent. This was much lower than returns offered by most fixed deposits and provident funds. However, there is good news. With rising inflation, interest offered on debt often increases.

Experts believe that India is on an upward growth trajectory that is likely to continue till the end of 2023. A favourable corporate sector, moderate inflation, rising exports and increasing cost efficiency are some reasons for why the Indian investment landscape looks promising.

Digital Gold - a glittering investment

In 2022, gold prices reached a historic high of INR 55,000. Investing in gold is a good hedge against inflation, and one is assured of positive returns from the underlying value of the metal. There are several ways of investing in gold digitally. One can subscribe to RBI’s Sovereign Gold Bonds, or invest in Gold based mutual funds. Additionally, gold futures contracts could be short term investment instruments that make profits based on changes in gold price.

Sectors to watch out for in 2023

Whether you’re an individual investor looking to diversify your portfolio or a startup founder looking for investments, here’s Compliance Calendar’s take on the key sectors that are all set to record growth:

Giving up your own equity or not - A founder’s dilemma

One of the most frequent advisory questions we receive is whether or at what stage should an early stage business give up equity. It’s important to factor that as a startup founder, you’d need constant capital to hire talent, build prototypes, fund an office/working/manufacturing space, and connect with investors and consumers. For this, a reasonable amount should be set aside. While giving up equity in exchange for cash flow is the often taken path, it entails risks of diluting stakes too early in the business. With a steady base of financial returns through investments, pooling from family and friends, a startup founder may be able to generate enough seed-funding on their own. However, the decision to dilute equity is one that requires careful planning and deliberation.

Connect with one of our experts at Compliance Calendar to get the best of tailored advice for funding your business.