Investment Objectives: An Essence of every Investment

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·         Investment Objectives: An Essence of every Investment       

        

 As in the last post we have seen that there should be objective for every investment based on specific need or purpose and hence, the objectives are like an Essence of every investment because without which your investment ship will not reach desired destination.   In simple words, an objective for the investment will work like a Rudder to the ship.

Whenever we have a discussion with friends, family or any prospective investors, one thing is commonly observed irrespective of the awareness of the investor, that is very few of the investors have FOCUSED view about their investment and most of the  investors invest money because they have excess cash and later ones understand that that cash laying in the bank account will not yield much returns, however they are not clear what to do with it.

·         Typical Investment Objectives

In general, there are below investment objectives, apart from these there can be any other objective also depending upon person’s individual requirement

·         To Reduce Tax Liability

·         To plan for after retirement Income

·         To increase other Income sources from dividends etc.

·         To compound savings

·         To meet future expenses either fixed or if occurred

·         To fight the inflation

·         Hedging

People who invest through advisers also many a times not clear about their objectives and hence moat of the times are not satisfied with the portfolio performance, then they blame Equity Investments as risky one, on incurring losses. But they don’t understand that losses are incurred due to lack of clear investment objectives and not because of Equity markets.

Now, every investment option will have its own benefits as well as disadvantages too. For instance: in tax savings investment options you will have some lock-in period, till the completion of which you cannot withdraw the amount. That’s why the prospective investor himself should keenly study every option despite having good broker or investing institute as you are investing for your needs and not for completing anyone’s work target. As famous Goebbels propaganda principle is present in every field though which an naive investor can be misguided easily mostly under the Sugar quoted Title, ’T&C Applied’.

·         Types of Investments

Generally, based on the objectives, investments can be broadly divided in three key types:

1.       Short Term Investment

2.       Medium Term Investment

3.       Long Term investment

The very important thing is one should be able to synchronize investment purpose, duration within which it needs to be achieved, expected amount at the end of the duration and risk bearing capacity of an individual (this also depends upon on the duration).

One cannot put X amount in equity and expect it to be back with Double return within 6 months.

E.g. If objective is ‘Accumulation of retirement corpus’ one needs to have time horizon of at least 15-20 years. While calculating amount to be expected investors needs to consider rate of inflation, life-style and any other needs etc. In such case, it doesn’t make sense to put money in liquid funds, which are low risk but low return as well. On the contrary, if you are planning to accumulate money for your daughter’s school fees next year; you can’t put it in equity mutual fund or buy some shares with it.

In next blog we will see more interesting facts… stay tuned with us on ABCD of Investment by Madhura P. Karekar.

Happy Investing…

-ABCD of Investment by Madhura P. Karekar

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