What is an Investment Objective?
An investment objective refers to the role an investment plays in helping you achieve your financial goals. Identifying your objective of investment management can provide direction toward specific securities or asset classes.
Generally, objectives are determined based on risk and return. The amount of risk you are comfortable taking will determine your returns.
For instance, young professionals with a steady income and few financial responsibilities will want to pursue growth through their investments. However, an elderly widow will be interested in investing her life’s savings for safety and income generation. So, what are the objectives of investment? Let us investigate. Objectives of Investment Management
Investing is a means to expand your wealth. It is a technique to make your money gain returns, secure your future, and beat inflation. Here are the main objectives of investment:
1. Safety
You always want to keep the money you’ve worked so hard for safe. Investing ensures you do not use your money for immediate and unnecessary expenditures. Moreover, it protects your money from the effects of inflation.
Safety is the primary objective of investing for you if you are a conservative investor who desires timely returns without taking risks. Some investment instruments do not let your money erode with time. These include an ordinary savings account, government bonds, bank securities, and fixed deposits.
2. Capital expansion Capital appreciation is also one of the primary objectives of investment management. You put money into the goal of seeing it turn into a sizable corpus over time. Generally, this is a long-term objective of investment.
To fulfil this goal, you need to pick investment options that offer significant returns on investment. Therefore, the right investment options for you are equity, commodities, mutual funds, and real estate. Although the risk associated with these investment instruments is high, the returns are also relatively higher.
3. Generating regular income This objective emphasises on generation of income from investments. Focusing on this objective requires sacrificing safety to an extent. Income generation is an objective of investment for investors seeking passive income and retirees.
Investment instruments offering income in the form of yields, interest, or dividends carry low stability and a high level of risk. Their returns, however, are higher. 4. lowering taxes The optimization of investments for tax advantages is a secondary objective of investment. Tax-saving instruments help investors minimise tax liabilities on investment returns.
The National Pension Scheme (NPS) and tax-free savings accounts are two investment tools that encourage tax savings. Life insurance plans and tax-efficient mutual funds also help in earning significant returns and saving taxes.