INVESTMENT OBJECTIVES

Every kind of investment comes with its own set of features that translate into your goals. These
aspects and goals can be categorised into primary and secondary objectives as explained below
PRIMARY OBJECTIVES:
Safety or Capital Preservation:
 This is often associated with elderly people who want to make sure they do not outlive
their money.
 Retired or near retiring investors’ primary objective would be to preserve the principal
amount sometimes even at the cost of returns. They do not have enough time in hand
to earn back the capital , if lost.
 Some of the safest investments are the money market securities such as treasury bills
(T-bills), certificates of deposit (CD), commercial paper or banker’ acceptance slips.
Income / Yield:
 There is an inverse relationship between safety and yield. Higher the safety , lower the
yield.
 Due to this, investors inevitably have to either sacrifice safety for better returns or opt
for safe investments and be satisfied with moderate to low yields.
 Many who prefer a stream of current income are retired and use the income for living
expenses. For them pension plan will be suitable and preferred investment.
 Other people take advantage of a lump sum of capital to create an income stream that
provides cash for certain current needs such college fees, unforeseen small household /
health care expenses etc. They may prefer corporate bonds, which give yield
comparatively higher than the money market instruments.
Capital appreciation / growth:
 This is concerned with long-term growth.
 This objective is pursued by young investors who wants to start early to achieve long
term goals such as children’s higher education, retirement, etc. and their investments
work for many years inside a qualified plan.
 Some countries may allow tax concession on capital gain for investments in preferred
sector or area. Hence one such support item is to keep capital gains tax at a lower rate
than income that will encourage public investments in these areas
I. SECONDARY OBJECTIVES
Tax Minimization:
 An investor may pursue certain investments in order to get tax reduction as part of his
or her investment strategy.
 Making contributions to an insurance premium, acquiring property through home loan,
infrastructure bonds etc. would generate income, as well as reduce the tax burden and
increase the take home pay.

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Marketability / Liquidity:
 Marketability means easily marketable or saleable. Liquidity means capable of being
converted into cash without significant loss.
 To achieve liquidity, investor may have to sacrifice of a certain level of income or
potential for capital gains. Best liquid assets are Fixed Deposit, Gold, etc.
 Fixed deposits give regular income but have not capital gain. Gold on the other hand
appreciates in value but will not give any regular stream of income.

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 INVESTMENT STRATEGIES
1. Aggressive Investment strategies:
 They are popular with investors who aim to have maximum returns with long term
horizon and high risk appetite that is they can tolerate volatility of principal value.
 An aggressive portfolio has larger share of investment in equities with risk of capital
erosion.
2. Conservative investment strategies :
 They put safety at a high priority and are most appropriate for investors who are risk
averse and have a shorter time horizon.
 Conservative portfolios comprise of investments with low risk of capital loss such as
FD with bank and high rated company, money market funds, etc.
3. Diversification :
 This is an investment strategy to take care of income generation as well as minimise
risk of capital erosion.
 It is the simple practice of "not to keep all eggs in one basket."
 If investments are spread across various types of assets and markets, the risk of
catastrophic financial losses will reduce.
4. Cost averaging strategy :
 An investment strategy used whereby an investor invests fixed amounts regularly ,
say monthly, regardless of the price of the investment.
 In this investors can also avail of lower unit price when markets are down. This
effectively gives a better average cost price over a time period.
 This needs a disciplined fixed time investment that takes care of speculation over
right time of entry.
5. Magic of compounding :
 Compounding transforms the invested money into highly powerful income-generating
tool..
 Compound interest means interest income on our interest income, resulting in your
money growing at an ever-accelerating rate.
 Compounding only works, if you allow your investment to grow for many years.
 Patience and persistence are the key

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 INVESTMENT AVENUES:
The various types on investment avenues are
1. Mutual Funds:
The money is pooled / collected from many investors and managed professionally to buy
securities
2. Securities:
These are financial instruments, where the investment is either as an owner (equity) or as a
creditor (bonds) or as right to ownership (option) in government and corporate organisations.
a. Negotiable: Any security that can be freely and openly bought sold and
transferred such as shares, bonds, government securities, treasury bills etc.
b. Non-Negotiable Securities: It cannot be bought, sold or transferred freely.
Generally, a non-negotiable security is traded over the counter in a private
transaction and redeemed by the issuer. E.g. Bank term deposits, post office
deposits, PPF, NSCs, life insurance policies
3. Real Assets:
 They are physical or tangible assets that have value, due to their substance and
properties such as precious metals, commodities, real estates.
 They are particularly well-suited for inflationary times, because of their tendency to
outperform financial assets during such periods.

a. Real Estates:
 Investing involves the purchase, ownership, management, rental and/or sale of
real estate for profit.
 Real estate is a risky investment if not managed professionally, because it is
capital intensive with limited liquidity.
b. Gold:
 For centuries gold is considered to be the safest investment across the world
since its value and demand is ever increasing and there is no risk of capital
erosion.
 In difficult times of inflation, market volatility, or personal crisis, gold often
becomes the only resort for investors wanting to diversify.
 However, unlike other investments gold does not provide any dividend or
interest income.
c. Collectibles:
 Articles such as jewellery, art, or antiques can all be considered as real assets.
 Many of these assets have the potential for capital gains but most times
purchased as part of a hobby or for aesthetic purposes making it a cash
incentive no income investment.

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 MAGIC OF COMPOUNDING

• In the chart are shown the returns on ₹100 example invested for 35 years for 4 different return
rates 4, 6, 8 and 10%
• The above return rates have only 2% difference with their succeeding values, but the final
returns are having a wide progressive gap

Double of 4% return rate is 8%, but the final return is nearly 3.74 times (1479 / 395 = 3.74)

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