Investing your money is probably the most financially smart decision you’ll ever make. There are many investment objectives, but one remains the most obvious Objective of investment, i.e., Capital growth. Investment is a sure-shot way of growing your money, and that is why it has gained so much popularity among financially smart people. Whatever is your objective behind investing your money, it is a financially viable decision.
So, what exactly are the most common objectives of investment? There are four basic objectives of investment that cover how you achieve all financial goals when it comes to investing. While some approaches may be effective for one goal, they may be ineffective for another.
In this article, we will walk you through exactly what investment is, why investment is important, why one should invest, the most common objectives of investment, and everything else you might want to know about investing your money.
- Investing refers to putting money or other resources into something with the expectation of generating revenue, profit, or some other favourable outcome.
- You buy assets that you intend to appreciate over time when you invest, potentially increasing your net worth.
- There are many types of investment options. They are Mutual funds, Stocks, Bonds, PPF, ELSS etc.
- There are many objectives of investment. Some of these objectives are Capital protection, Capital appreciation, Tax exemption and Source of Income.
What is Investment?
You’ve probably heard the term a hundred times, but do you know what it implies? And why does investment play such a critical role in your financial stability? Investment is the process of buying assets in the market and leaving them as it is for a period so that they may grow in value and produce capita income or gains over time.
Did You Know?
The most expensive share in the Indian market is the Madras rubber factory or MRF share. It is currently valued at 68,372.35 INR for one share.
Investing works when you acquire an asset at a lower price and sell it at a higher price. One approach to making money investing is to make money by selling assets for a profit—or realizing your capital gains. In investing, risk and return are strongly linked. When you invest in assets with a high risk you are; likely to get high returns.
On the other hand, you will get low returns on low-risk investments. The decision to invest in either a high-risk investment or a low-risk investment is also affected by your investment objectives. Suppose your objectives of investment are capital growth. In that case, you are more likely to invest in high-risk, high return investment opportunities, whereas, if your Objective of investment is safety, then low-risk options are more viable for you.
What are the Major Objectives of Investment?
The Objective behind investing your money can be different for different people. Although the number of possibilities for investment is growing, each one can still be classified into three categories: safety, income, and growth. There’s a fourth one – tax deduction. Any successful investor must know how to strike the right balance among these four worthy Objectives of investment.
Capital preservation is one of the primary objectives of investment for people. Some investments help keep hard-earned money safe from losing value with time. By parking your funds in investment schemes, you can ensure that you do not outlive your savings. Fixed deposits and government bonds can help keep your money safe. Although the return on your investment may be lower here, the Objective of keeping your money safe is easily met.
- Capital Growth
Probably the most important Objective of investment is capital appreciation or growth. This type of Objective is easily met with long term investment options such as the Public Provident Fund scheme. But with this type of investment, the return is less compared to high-risk options like mutual funds, stock market, real estate and equity.
Another popular objective of investment is a steady source of income. Fixed 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. Alternatively, they can serve as fantastic sources of supplemental income during your working years by providing you with extra cash to cover additional expenses.
- Tax Deduction
Apart from the three objectives of investment discussed above, tax deductions are the next most popular benefit of investment. Many people start investing because it allows them to save on their taxes. Section 80 of the income tax act 1961 permits investors to lower taxable income by making tax-saving investments. Examples of this type of investment are Unit Linked Insurance Plans (ULIP), Public provident funds (PPF) and Equity Linked Savings Schemes (ELSS).
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.
Whether you invest in stocks, bonds, precious metals, real estate, small businesses, or a mix of all of the above, 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.
Types of Investments
Now that we have discussed what investment is, it is time to examine your options. Check different types of investments are available to you based on your objectives of investment. Consider these as instruments for achieving your financial objectives of investment.
Following are the different types of investments:
- 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 life insurance and investment into a single package, unlike a traditional insurance policy.
- 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.
Investing implies putting money or resources into something to gain money or make a profit. Stocks, bonds, mutual funds, and real estate are all different investment vehicles with different levels of risk and profit. In today’s economy, investing your money is a great option to grow it over time. Depending on your financial goals and objectives of investment, you can choose from a wide range of investment options. The only way to get high returns on your investments is to invest in high-risk options.
Now that we have discussed the various objectives of investing, it’s now time for you to start your investment. But, remember to do your research and examine your objectives of investment so that you make feasible choices.
Objectives of Investment: FAQs
The first step toward investing is to identify your objectives of investment and then understand your investment options. There are 3 folds – Examine your Objectives for investment; Diversify your investment portfolio; Reassess your investments periodically.
Generally speaking, Safety, Capital growth, Tax benefits, Retirement planning & a steady source of income are some of the primary objectives of investment:
An investment is an asset purchased to earn money or increase in value.
The best time to invest money is in your 20s because it allows your money to grow for a long period. In other words, the most ideal time to start investing is sooner rather than later.
The following are some of the investment options available in India:
Bonds, Stocks, Certificates of Deposit, Fixed Deposits, Real Estate, Mutual Funds (MFs), Unit Linked Insurance Plan, Plan Public Provident Fund (PPF) (ULIP) &Savings Plan for Senior Citizens.