There are four basic objectives of investment – to keep your money safe, to help your money grow (capital growth), to develop an alternate stream of income and to be able to save on income taxes. Other investment objectives include safeguarding your retirement phase and to support your future goals.
In this article, we will walk you through what investment is, why investment is important, why one should invest, the most common objectives of investment, and more.
What is Investment?
An investment is an asset or an item which is acquired/purchased with the goal of generating income or appreciation. So basically, it is anything bought with the intention of multiplying it in the long run, in terms of its financial value. Some of the examples of investment are estate, shares, fixed deposits and gold etc.
Did You Know?
The most expensive share in the Indian market is the MRF share (Madras Rubber Factory). It is currently valued at Rs 91,000 for one share (as on 13th December 2022).
What are the Major Objectives of Investment?
There are 4 main objectives of investment, viz. Safety, Capital Growth, Income Generation and Tax Deductions. Let’s discuss these in detail:
- Safety
By parking your funds in investment schemes, you can ensure that you do not outlive your savings. If your primary goal is to safeguard your hard-earned money, you must invest in a guaranteed fixed-return investment like a fixed deposit or a PPF. For employed individuals, an EPF serves the purpose in a similar manner.
- Capital Growth
If your money is not growing, it is basically not an investment. That is why we have two different terms – savings and investments. We save our money and then this saved money is invested for capital growth. If it’s not growing, it’s mere savings.
To multiply your money, your investment portfolio must have some exposure of high-risk options like mutual funds, stock market, real estate and equity. With high risk possibility, you also get high return probability – the key is to strike the right balance here!
- Income
Another popular objective of investment is a steady source of income. Fixed deposits or post office time deposits that pay out regular interest or stocks that pay dividends regularly are examples of such investments. After you retire, income-generating investments might help you pay for your daily expenses.
- Tax Deduction
Apart from the three objectives of investment discussed above, getting tax deduction is the next most popular benefit of investment. Some of the best examples of investment that help with taxes are life insurance policies (80C for deductions on premium paid and 10 (10D) for sum insured received), pension plans (80CCC) and NPS etc.
Why Should You Invest?
In today’s world, there are two ways to make money. The first choice is to earn a living by working for someone else or for yourself. Another strategy to expand your fortune is investing your assets to rise in value over time. However, the best way is to blend the two ways and make the most of your money.
Whether you invest in stocks, bonds, precious metals, real estate, small businesses, or a mix of these, the end objectives of investment are income generation and capital growth. Investing provides current and future financial security. It allows you to accumulate wealth while still exceeding inflation.
Thus, if you want to see your money earn for you, make your future secure and beat inflation, you should start investing.
Types of Investments
The following are the different types of investments available in India for a resident Individual:
- Stocks: One of the most prevalent and popular investment options is stock investing. But how does stock investing work? When you buy stock of a company, you become its shareholder. Stocks are ownership shares. Whether you profit or lose money on a stock is determined by the company’s success or failure, the overall state of the stock market, and other factors.
- Bonds: A bond is fixed-income security representing an investor’s debt to a borrower. Buying bonds implies that you are essentially lending money to the institution or the government. On this loan, you get a fixed rate of interest which becomes your return on investment. The risk factor is present in bonds as well. This risk will depend on the type of bond you buy.
- Mutual funds: Mutual funds are essentially pools of money collected from multiple investors and invested in various products to attain mutually agreed-upon goals. A fund manager manages these funds.
- Unit linked insurance plan (ULIP): ULIP is a plan sold by insurance firms that combines the benefits of life insurance policy and investment into a single package, unlike a traditional insurance policy. Plus, you get to save on income tax as well. This makes it a 3-way win at the cost of one!
- Public provident fund (PPF): PPF is a straightforward investing option which yields profitable returns post-retirement. It’s a government-sponsored savings program that deposits your money for a fixed period of time and pays you interest. Starting October 1, 2018, it offers an 8% interest rate.
Note: This is only an indicative list.
Word to Remember
Investment portfolio: A portfolio is a collection of financial assets such as stocks, bonds, cash, and cash equivalents.
Objectives of Investment: FAQs
Money stability, capital growth, income generation and tax deductions are the prime objectives of investment. That said, a sound investment portfolio can prove to be your best friend in your post-retirement life.
An investment is an asset purchased to earn money or increase in value. In simple words, when your money starts earning for you, you can label it as a successful act of investment.
The best time to invest money is in your 20s or early 30s because it allows your money to grow for a long period. In other words, the most ideal time to start investing is now, when you have less dependencies.
