Importance Of Investment Due Diligence In Exempt Market Investments
Most people find investing in exempt market to be very lucrative opportunity of earning high returns on their investment. But as in any other financial sphere there are many complexities in this type of investment and investor must utilize investment due diligence so that they can take the right decisions and protect their hard earned money.
As such let us check some of the questions you need to get answers for before investing in exempt markets.
Investment in Exempt Securities and Due Diligence
What you as an investor will hold?
Unlike stock markets, if you are investing in exempt market products then it does not necessarily mean that you will have ownership in a company. Oftentimes, such exempt market products will provide you a pre-defined percentage out of the profits company earns.
However, if there is no profit then it there will be no returns for you and as an investor you will also not get back the investment you had made.
# Suggestion: To safeguard your interest you need to go through details about the company you plan to invest in to know company’s performance in the last few years.
How your investment will be generating money?
Before investing you should know whether your investment will be in any kind of asset and additionally will such asset be sold in the market in case its price moves up. Apart from that you need to know if the investment will be into a company doing manufacturing.
# Suggestion: If there is no clear information on how your investment will earn money then it will be a wise decision to stay away from those investment options.
How the investment will be utilized?
You need to get answer for the following questions:
- Will your investment used to improve sales by doing activities like purchase of inventory or creation of new sales center?
- Will the money used for payment of different operational overheads or salaries which will help the firm in surviving but will not assist it in earning profits.
# Suggestion: Proper investment due diligence will be required in such situation and the dealing representative must tell you how the firm will utilize your investment so that you can be sure about possibility of earning profits from your investment.
Is company’s main office located outside the country?
If the firm is operating from its main office located outside the country or is actually based in some other country then you can face problems. More importantly if the country where that company is based is not among trade partner countries of Canada then may face issues in future.
Once your money leaves the country, it can be really difficult to bring it back in case any problem occurs.
# Suggestion: It will be most important thing for you to ensure that the firm you will invest your money in is located in the country in case it becomes necessary to take any kind of legal action for recovering your investment.