Often, an investment objective is expressed as a questionnaire, with responses specifying the client’s aversion to risk (risk tolerance) and the duration of the investment (time horizon) (time horizon). In essence, the information acquired from the form filled by the individual or customer establishes the portfolio’s purpose or objective in terms of the sorts of securities to include.
What Is an Investment Objective?
An investment objective is a form that registered investment advisors (RIAs), robo-advisers, and other asset managers use to establish the optimal portfolio mix for a client. Individuals who manage their own portfolios can also contribute to the fulfilment of an investment objective.
The answers to these questions would be utilised to alter the portfolio of a person or customer. For instance, a consumer with a high risk tolerance who wishes to purchase a home in five years and desires capital growth will be assigned a short-term aggressive portfolio. This aggressive strategy would almost certainly include a greater allocation to equities and derivative instruments than to fixed income and money market products.
On the other hand, a 40-year-old high-income earner investing for retirement in 20 years and primarily concerned with capital preservation may build a long-term portfolio primarily composed of low-risk assets such as fixed income, money market, and any other investment that protects capital against inflation.
Objectives of Investment
Before you invest in any of the different investment plans accessible in India, you should grasp the rationale for doing so as well as the investment implications. While the exact investment objectives vary according the investor, the overall aim of investing money might be any of the following.
To Preserve Your Capital
One of the fundamental objectives of investment is capital preservation. Certain investments can help protect your hard-earned money against depreciation over time. By investing in these items or programmes, you can assure that your money will not outlast you.
Fixed deposits, government bonds, and even a simple savings account can all assist you in safeguarding your funds. While the rate of return on investment is lower, the objective of capital preservation is readily satisfied.
To Contribute to Money’s Growth
Another typical objective of investing is to watch the money grow into a sizable sum over time. Capital appreciation is typically a long-term objective that aides individuals in safeguarding their financial futures.
To transform your earnings into wealth, you must invest in objectives that provide a high rate of return on your original investment. Real estate, mutual funds, commodities, and stocks are all excellent growth assets. While these choices carry a significant degree of risk, the reward is usually enormous.
To provide a Steady Supply of income
Additionally, investments can help you generate a steady source of supplemental (or primary) income. Fixed deposits that pay interest on a regular basis or corporate equities that pay regular dividends are examples of such investments.
After retirement, income-generating assets may assist you in meeting your regular costs. Alternatively, they may be wonderful sources of additional income during your working years, assisting you in covering additional expenditures such as college tuition or EMIs on top of your regular pay.
To Alleviate the Fiscal Strain
Apart from capital preservation and growth, investors may have additional compelling investment objectives. This impetus is supplied through tax advantages under the 1961 Income Tax Act. Investing in Unit Linked Insurance Plans (ULIPs), Public Provident Funds (PPFs), and Equity Linked Savings Schemes (ELSSs) may result in a reduction from your gross income. This reduces your taxable income and hence your tax burden.
Saving for Retirement
Saving money for retirement is crucial. Because you may not be able to work indefinitely, it is vital to have a retirement fund to fall back on throughout your senior years. If you invest the money you make throughout your working years in the appropriate investment alternatives, you can allow your savings to grow sufficiently to sustain you once you retire.
To Help You Achieve Your Financial objectives
Additionally, investing can assist you in meeting your short- and long-term financial objectives with less worry and hassle. For example, certain investment options offer short lock-in periods and high liquidity.
These are excellent investments to make if you’re looking to save for short-term goals such as home improvements or establishing an emergency fund. Other investment alternatives with a longer lock-in period are ideal for long-term money management.