What are the various objectives of investment?
Investing is a widespread practice and many have made their fortunes in the process. The starting point in this process is to determine the characteristics of the various investments and then matching them with the individuals need and preferences. An investment is made because it serves some objective for an investor. Depending on the life stage and risk appetite of the investor, there are three main objectives of investment: safety, growth, and income. Every investor invests with a specific objective in mind, and each investment has its own unique set of benefits and risks. Let us understand these objectives in detail.
There are three main objectives of Investment
Even as no investment choice is completely safe, there are products which might be desired through investors who’re threat averse. A few individuals make investments with a goal of retaining their cash secure, no matter the charge or going back they acquire on their capital. Such close to-secure products encompass constant deposits, financial savings debts, government bonds, etc.
While safety is an important objective for many investors, a majority of them invest to receive capital gains, which means that they want the invested amount to grow. There are several options in the market that offer this benefit. These include stocks, mutual funds, gold, property, commodities, etc. It is important to note that capital gains attract taxes, the percentage of which varies according to the number of years of investment.
Some individuals invest with the objective of generating a second source of income. Consequently, they invest in products that offer returns regularly like bank fixed deposits, corporate and government bonds, etc.
While the aforementioned objectives are the most common ones among investors today, some other objectives include:
Many investment options are not liquid. This means they cannot be sold and converted into cash instantly. However, some people prefer investing in options that can be used during emergencies. Such liquid instruments in include stock, money market instruments, and exchange-traded funds, to name a few.
Some people invest their money in various financial products solely for reducing their tax liability. Some products offer tax exemptions while many offer tax benefits on long-term profits
Every investor has common objectives with regard to the investment of their capital. The importance of each objective varies from investor to investor and depends upon the age and the amount of capital they have. These objectives are broadly defined as follows.
Lifestyle – Investors want to ensure that their assets can meet their financial needs over their lifetimes.
Financial security – Investors want to protect their financial needs against financial risks at all times.
Return – Investors want a balance of risk and return that is suitable to their personal risk preferences.
Value for money – Investors want to minimize the costs of managing their assets and their financial needs.
Peace of mind – Investors do not want to worry about the day to day movements of markets and their present and future financial security.