The economic fundamental says ‘Higher the risk gives higher profit’ which defines the cheapest form of investment i.e.,Equity. Since it is risky in nature the maximum amount of profit can be achievable in the form of equity. Now, talking about investors point of view who wants to invest money through Private Equity. In this situation few questions cross the mind:
Why Invest in Private Equity?
The fundamental reason for investing in private equity is to improve the risk and reward characteristics of an investment portfolio. The investor gets the opportunity to generate higher returns while improving portfolio diversification.
Where to invest?
Organizations or individual searching for investment will always look for developing areas where you see potential growth and scope. One can appoint Private Equity Analyst for finding out the best industry to invest in. Past track records of the profitability of the company, future of the product’s market share among peers.
How much to be invested?
A foreign Investor investing in India should go through RBI guidelines. For the foreign investment in India cannot be more than 24% of the paid up capital.An Indian investor can invest as per the risk. Ideally, investment should be around 30-40% in the company.
How to realize profit and in what time?
A detailed project report is prepared based on the future estimations, providing the EBIT, PAT and book value of the Company.Generally two ways are decided by the Private Equity players to realize profits out of their investments is by sale of their stake in Market after IPO by the company, and by selling their stake back to the promoters.
The most common procedure after the Private equity
To raise the capital company goes for Initial Public Offer (IPO) within 6-8 years. The time period may be different as per the case and the company situation.If the performs of the company is developing every year and coming out for IPO then it will get the benefit of market capitalization which in turn helps the Private Equity players to realize huge profits on their investments, but after selling their stalks in the open market.