Objectives of Investment

The primary outcome of good financial planning is creating a corpus for various life goals. Life goals may vary across individuals. So, one can choose investment vehicles according to his/her short-term and long-term objectives. These investment goals can be children’s education, marriage, purchasing a house or car, and retirement planning for an independent financial existence. 

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Finally, one can round off to leave a legacy for descendants. That brings us to the cardinal question – what is an investment? So, let us look for answers.

Investment Types

Investment is putting money in assets that either have the potential to grow and yield returns or appreciate over time. It is crucial to understand the meaning of investment in a particular financial situation to make the right choices. Thus, you can invest in generating income in two ways. First, investment in a saleable asset fetches your income by profit. Second, investment in a return-generating asset brings income accumulating gains. Therefore, investment is an asset that appreciates over time.

Understanding the types of investment goes alongside the objective. Thus there is no one size fits all solution. Your choice of the right investment vehicle and the time horizons are critical to fulfilling your goals. For example, hazardous equity investments have the potential to deliver the highest returns in the long term. In comparison, debt instruments yield fixed returns to meet short-term needs, though safer and conservative. So, let us dig deeper into the types of investment vehicles available in the Indian scenario.

  1. Stocks: Shares of companies are high-yielding instruments and own a part of the invested company. On the flip side, they are the riskiest and may lose your money.

  2. Bonds: Government and companies are bond issuers. While the former borrows funds from the investors to roll out infrastructure projects, the latter raises capital to run or expand their business enterprises. As a result, you earn a fixed income through attractive coupon rates until you stay invested.

  3. Mutual Funds: Many investors pool their money to invest in market instruments while sharing a common goal. You invest in equity, debt, or hybrid fund schemes depending on your investment objectives matching your risk appetite.

  4. Exchange-Traded Funds: It is very similar to the Mutual Funds with a fundamental difference that they trade actively on the bourses. They are a collection of investments that track an underlying index.

  5. Commodities: They are raw materials of agricultural products, metals, oil, and gas, forming a significant asset class. However, they are not suitable for individual investors as their trading is always bulk.

  6. ULIP: Like Mutual Funds, the Unit Linked Insurance Plan combines investment with an insurance cover. In addition, you can claim a tax deduction under Section 80C of the IT Act, 1961.

  7. PPF: The Public Provident Fund (PPF) is a government-sponsored investment scheme. It is one of the time-tested investment vehicles popular among the salaried class. As a result, one enjoys tax benefits with high-interest rate earnings during its entire lifecycle.

  8. Fixed Deposit: One can park his/her money to earn interest with the benefit of compounding. It is one of the safest investment vehicles with a fixed term from seven days to ten years.

  9. Real Estate: They offer a lucrative investment option in creating property assets with the potential of appreciation in the future.

  10. Insurance: They offer a wide choice of schemes covering the life risk during the policy term. Thus, one can purchase or invest in terms, of endowments, money-back, children, and retirement plans. However, we cannot strictly judge them on financial returns but on the financial protection of the survivors in the policyholder’s absence.

In Conclusion

There cannot be any investment without a clear objective in mind. However, multiple investment options with different risk attributes provide the necessary impetus to wealth creation to meet the objectives. Therefore, one’s investment goals, age, lifestyle, and risk appetite impact their financial goals. However, for inflation-beating returns as an investor, one must brace for market volatility and fluctuations while making investment decisions.

FAQ's

  • Q: What are the essential points to consider before investing?

    Ans: You must consider a few points before identifying investment options and objectives. Accordingly, the four shortlisted points to consider before investing in India are:
    • Analyze financials and goals
    • Diversify asset allocation
    • Choose investment tenors wisely
    • Ensure periodic review
  • Q: What are the three factors characterizing investments?

    Ans: Safety, income, and capital growth are the three factors characterizing one’s investment in a blend of assets. However, one is preeminent among the three, but an appropriate mix evolves with time and circumstances to deliver the best returns.
  • Q: How do savings differ from investments?

    Ans: Savings essentially means to meet current financial liabilities, while investments have definite goals for meeting short-term and long-term financial goals in the future.
  • Q: What are the critical points to note in real estate investment?

    Ans: Real estate investments offer massive prospects in sacral sectors like hospitality, retail, and commercial housing. In addition, one can consider investing in residential properties or even real estate mutual funds with the potential to return handsome yields. However, real estate investments are illiquid on the flip side.
  • Q: What do you mean by a risk-reward ratio in investment?

    Ans: Every investment bears varying levels of risk-reward ratio, and it influences the investment products. Accordingly, risk tolerance is crucial in deciding the investment goals and horizon.

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