112726, 211 PM Investment Models India UPSC Notes: Meaning, Types, & Importance Overview Test Series PSCExams Vv Coaching _—UPSC Syllabus y —-UPSC Notes UPSC Previous Year Papers v > Home > IAS Prepara # Investment Models India UPSC Notes: Meaning, Types, & mo, 5 bast Updated on Jul 11 © 2004 ion > Investment Models | Also Read investment Models in ind & Download As PDF Investment models are analytical frameworks used by investors to assess the potential risks and returns of various assets or portfolios. These models employ mathematical equations, statistical analysis, and economic principles to forecast future performance based on historical data and market trends. Common investment models include Modern Portfolio Theory, Capital Asset Pricing Model, Arbitrage Pricing Theory, and Black-Scholes Model, each offering unique perspectives on risk management, asset valuation, and portfolio optimization. By utilizing these models, investors aim to make informed decisions to maximize returns while minimizing risks in their investment strategies. tps sRestbook.comas-preparation/nvestment-models ane52126, 3:11 PM. Investment Models India UPSC Notes: Meaning, Typ Importance Overview Test Series challenges associated, and a way forward. This will be very useful for aspirants in the UPSC Prelims Exam. ‘Also, study the 5-Year Plans in India from the linked article. What is Investment? Investment is the process of dedicating resources with the expectation of obtaining an additional income or profit. In economic terms, this often involves the allocation of capital (money) to ventures, assets, or projects with the aim of generating returns. The main goal of investment is to create value over time. It requires a thorough understanding of market conditions and potential risks and rewards. The basic principle of investment is to put aside a portion of current earnings with the hope that they will grow and generate higher future income. Importance of Investment in an Economy Investment plays a crucial role in the economic development of a country. It fosters economic growth, creates jobs, and enhances the productivity of resources. By channeling funds into productive uses, it drives technological advancements and innovation, which are vital for sustained economic progress. ‘ntps:testbook.comvias-preparatior/investment models 281572128, 3:11 PM Investment Models India UPSC Notes: Meaning, Types, & Importance Overview Test Series ragere np groupmyy cuve ever Gillions of dollars and per cent) 2500 2000 1500 1000 500 0 2008 2009 2010 2011 2012 213 2014 2015 2016 2017 2018 2019 2020 2021 WH Developed economies Developing economies World total Source: UNCTAD, FDVNINE database (htips://unctad.org/taistatistics). ntps:testbook comvias-preparation/investment.models 3852126, 3:11 PM. Investment Models India UPSC Notes: Meaning, Types, & Importance Overview Test Series QUE 07 Peiretce regent or cuononiy wr serecteu wre perio UNITED NATIONS UNCTAD Millions of dollars 80k 60k 40k 20k 0 1990 1995 2000 2005 2010 2015 2020 Year = India Source: UNCTAD World Investment Report 2022 © Economic Growth: Investment contributes to the increase in the productive capacity of the economy, leading to higher GDP. © Job Creation: New investments often lead to the creation of employment opportunities, reducing unemployment rates. © Innovation and Technology: Investments in research and development drive technological advancements and innovation, Study the Measurement of National Income here. Relationship Between Investment and GDP The relationship between investment and GOP is fundamental in __. primary component of GDP and significantly influences its size and growth rate. Here's how: ntps:testbook comvias-preparation/investment.models ane.52126, 3:11 PM. Investment Models India UPSC Notes: Meaning, Typ Importance Overview Test Series Increased demand for goods and services leads to higher production, directly impacting GOP. © Economic Multiplier Effect: Investment can lead to a multiplier effect, where the initial investment spurs further economic activity, leading to greater overall GDP growth. Read about Inflation in Depth here Classification of Investments Investments can be classified based on various criteria, each providing a different lens through which investors can analyze their portfolios and strategies. Understanding these classifications helps in making informed investment decisions. By Asset Type Investments can be categorized into different asset types, each with distinct characteristics and risk-return profiles. © Equities: Ownership shares in a company, considered high risk but with potential for high returns. © Bonds: Debt instruments issued by corporations or governments, offering lower risk and steady returns, © Real Estate: Property investments generating returns through rental income and capital appreciation By Risk Investments range in risk, and investors choose based on their risk tolerance and financial goals. © Low-Risk Investments: Examples include government bonds and savings accounts, which offer stability and predictable returns © High-Risk Investments: Include stocks and venture capital, which carry potential for higher returns but come with greater uncertainty. By Returns Different investments offer varying levels of returns, from fixed-income returns to variable, often higher returns from equities. © Fixed-Income Returns: Include interest from bonds and dividends from preferred stocks, offering predictable income. © Variable Returns: Equities and real estate can provide higher returns based on market performance and economic conditions, Factors Affecting Investment Investment decisions are influenced by several factors, which imp investors. These include economic conditions, interest rates, mark © Economic Conditions: The overall health of the economy significantly affects investment decisions. Investors tend to be more willing to invest during periods of economic stability and growth. ‘ntps:testbook.comvias-preparatior/investment models 51852126, 3:11 PM. Investment Models India UPSC Notes: Meaning, Typ Importance Overview Test Series markets may encourage more investment due to the expectation of rising asset prices. Study the Alternative Investment Funds (AIF) here. FREE Mentorship Program by Ravi Kapoor, Ex-irs UPSC Exam-Hacker, Author, Super Mentor, MA 10+ Success Sores Key Highlights \/ Achieve your Goal with our mentorship program, offering regular guidance and effective exam strategies. \ Cultivate a focused mindset for exam success through our mentorship program, CQO 2 akr~ seadents mentored Get Fr lentorship Now Investment Model Definition ‘An investment model is a structured approach used to make investment decisions and predict future financial outcomes. It involves using various tools, strategies, and criteria to guide investment choices, aiming to maximize returns while managing risks effectively. Investment models are essential for both individual investors and financial institutions as they provide a systematic way to analyze investments and make informed decisions. Study the Debt to GOP Ratio here. New © (nie All-in-One Pass For All Your Exams Includes @ All TestSeries @ Prev. Yea © Unlmite 1 @ Practice @ Pro live Test Major Types of Investment Models ‘ntps:testbook.comvias-preparatior/investment models 6852126, 3:11 PM. Investment Models India UPSC Notes: Meaning, Typ Importance Overview Test Series PPP Model (Public-Private Partnership Model) This model involves collaboration between public sectors (government) and private sectors. It is used primarity for large infrastructure projects like highways, bridges, and public utilities © Mechanism: In a PPP model, the private sector typically finances, builds, and operates projects, while the government supports through policies and sometimes funding, © Benefits: Leverages private sector efficiency and expertise while reducing the financial burden on the public sector. © Challenges: Complex contracts and risk-sharing agreements can be difficult to manage. Private Investment Model This model refers to investments made by private individuals or entities in different asset classes without government involvement. © Types: Includes investments in real estate, stocks, bonds, and private businesses. © Object control. © Risk: Higher risk due to lack of governmental backing, but also potential for higher returns. /e: To generate returns purely from private resources, aiming for higher profitability and Study the Priority Sector Lending (PSL) Scheme here. Private Equity Investment Model Involves investment in private companies, often through buyouts. Private equity fitms invest in businesses to enhance their value and eventually sell them for a profit. © Strategy: Includes buyouts, venture capital, and growth capital investments focused on restructuring and growth. © Returns: Potential for high returns due to strategic improvements and increased value of businesses. © Risk and Reward: High-risk investment, but capable of substantial rewards if the invested companies perform well Flaws in PPP Model Despite its advantages, the PPP model has notable flaws that can limit its effectiveness and lead to inefficient outcomes. © High Costs: PPP projects often incur higher costs due to the need for extensive legal, financial, and technical expertise. These costs can sometimes outweigh the benefits. © Risk Allocation Issues: Improper allocation of risks between "" —* mo project inefficiencies and financial losses. v © Administrative Hurdles: Heavy bureaucratic processes and f4.-.-0-.) ce eee ee implementation and completion. Recommendations of the Vijay Kelkar Committee to Strengthen the PPP Model ‘ntps:testbook.comvias-preparatior/investment models m852126, 3:11 PM. Investment Models India UPSC Notes: Meaning, Typ Importance Overview Test Series © Risk Management: Developing robust mechanisms for proper risk allocation and management to ensure project sustainability. © Contract Clarity: Ensuring clear, transparent, and detailed contracts to minimize disputes and misunderstandings between partners. © Institutional Support: Strengthening institutions that support PPP projects, including legal and regulatory frameworks, to facilitate smoother implementation Read in detail about the Public Private Partnership here. Alternative Investment Models ‘Apart from the widely known PPP and private investment models, several alternative investment models have gained traction, offering various advantages and addressing different investor needs. © Public Investment Model: Involves government investments in sectors like infrastructure, healthcare, and education, aimed at long-term public benefits © Crowdfunding Models: Platforms that allow numerous small investors to contribute to projects or startups, usually facilitated through online portals. © Venture Capital Models: Focuses on investing in early-stage companies with high growth potential, providing both capital and strategic support. Check out the test series for UPSC IAS Exam here. Test Series 3 ak Users # 364k Users # 165k Users UPSC Civil Services Prelims CA 2024 - UPSC IAS & State UPSC & State PSC Mock Test 2024 PSC Current Affairs Geography Test Series 296 Total Tests |? 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It posits that the growth rate of an economy is directly proportional to the level of savings and inversely proportional to the capital-output ratio. Key Concept © Investment and Savings: Economic growth is driven by the proportion of national income dedicated to savings and re-invested into the economy. © Capital-Output Ratio: The efficiency of investment, represented by the capital-output ratio, determines how effectively investment translates into economic output In the initial years post-independence, the Harrod-Domar model influenced India's focus on increasing savings and investments to accelerate economic growth. Early Five-Year Plans incorporated these principles to build the foundational infrastructure and industrial capacities. Solow-Swan Model The Solow-Swan model, also known as the neoclassical growth model, was developed by Robert Solow and Trevor Swan. It extends the Harrod-Domar framework, introducing technological progress as a key determinant of sustained economic growth. Key Concept © Capital Accumulation: While initial growth is driven by capital accumulation, diminishing returns to capital slow down growth rates over time. © Technological Progress: Long-term growth is sustained through technological advancements and improvements in productivity © Labor Growth: The model accounts for population and labor force growth as key components affecting economic output. ‘The Solow-Swan model underscores the importance of technological advancements and productivity improvements. India’s focus on educational reforms, innovation, and technology adoption in subsequent Five-Year Plans reflects the influence of this model. Read about the Goods and services tax(GST) here. Feldman-Mahalanobis Model P.C. Mahalanobis, influenced by the thoughts of Soviet economis India's Second Five-Year Plan (1956-1961). The model advocates for rapid industrialization by prioritizing heavy industries, assuming that they would later facilitate growth in other sectors. Key Concept ‘ntps:testbook.comvlas-preparatir/investment models, 0118112726, 211 PM Investment Models India UPSC Notes: Meaning, Types, & Importance Overview Test Series © Inter-sectoral Linkages: Heavy industries would eventually support consumer goods production by ReHarIGe, REUULINY UEPENUEHILy UI 1OFeIgIE HnpUr ts by UeveIUpIY BUrTESuE MuUsTTes. providing necessary infrastructure and raw materials. This model guided the strategic direction of India's economic planning in the 1950s and 1960s, leading to the establishment of public sector undertakings (PSUs) and significant investment in core industries. Rao-Manmohan Model Named after Prime Minister P.V. Narasimha Rao and his Finance Minister Dr. Manmohan Singh, this model is synonymous with the 1991 economic reforms that liberalized the Indian economy. Key Concept © Economic Liberalization: Reducing state control over the economy, dismantling licensing requirements, and encouraging private sector participation. © Structural Reforms: Reforming trade policies, financial sector, and industrial policies to promote efficiency and competitiveness. © Global Integration: Encouraging foreign direct investment (FDI) and integrating India into the global economy through trade liberalization. ‘The 1991 reforms transformed India's economic landscape, spurring rapid growth, modernization, and increased foreign investment. The model marked a shift towards a market-oriented economy, enhancing India’s global economic standing, Read about the New Economic Policy 1991 in-depth here. Key Takeaways for UPSC Aspirants © Definition and Purpose of investment: Investment is the allocation of capital with the expectation of generating future income or profit. It is crucial for economic growth and individual wealth accumulation © Public-Private Partnership (PPP) Model: The PPP model combines public and private sector resources and expertise to finance, build, and operate projects, particularly in infrastructure. It aims to leverage the strengths of both sectors for efficient project execution. © Private Investment Model: This model involves investments by private entities in various asset classes such as real estate, stocks, and bonds, without government involvement, aiming for higher profitability and control © Private Equity Investment Model: Private equity involves investing in private companies or buying out public companies, focusing on restructuring and enhancing their value for profitable exits, This model is high-risk but has the potential for high returns © Factors Influencing Investment Decisions: Key factors incl Vv market trends, and government policies. These elements a investment opportunities. © Challenges in the PPP Model: The PPP model faces high costs, risk allocation issues, and administrative hurdles. Effective risk management, clear contract terms, and strong institutional tps sRestbook.comias-preparation/nvestment-models 81572128, 3:11 PM. Investment Models India UPSC Notes: Meaning, Types, & Importance Overview Test Series aiming to improve project efficiency and sustainability. © Investment Models in India: India employs various investment models, including PPP for infrastructure, private investments in real estate and equities, public investments in defense and social infrastructure, and venture capital/private equity for boosting startups and innovation. These models cater to different economic needs and development goals. We hope all your doubts regarding the Investment Models will be cleared after going through this article, You can check out our UPSC Online Coaching and download the Testbook App now to check out various other topics relevant to the UPSC IAS Exam. More Articles for IAS Preparation National Bamboo Mission Green Gdp UPPSC Physics Notes, Syllabus & Exam Pattern: Download PDF Here! UPPSC Electrical Engineering Syllabus & Exam Pattern: Download PDF Here! Alternative Investment Funds Lok Sabha Speaker Roles And Responsibilities Special Officer For Linguistic Minorities Competition Commission Of India UPSC Indian Education System Problems And Challenges Labour Law Reforms In India Investment Models UPSC FAQs What are investment models in economics? What is private investment model? -ntps:itestbook.comvias-preparatior/investmentmodels rat852126, 3:11 PM. Investment Models India UPSC Notes: Meaning, Types, & Importance Overview Test Series How to create investment models? What are the models of direct investment? What is SIP model? 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