INVESTMENT OBJECTIVES

OBJECTIVES  INVESTMENT

The main investment objectives are increasing the rate of return and reducing the risk. Other objectives like safety, liquidity and hedge against inflation can be considered  as subsidiary objectives.

Return     

Investors always expect a good rate of return from their investment. rate of return could be defined as the total income the investor receives during the holding period stated as a percentage of the purchasing price at the beginning of the holding period.

Return=
End period  value – Beginning period value+ Dividend   x 100

                                         Beginning period value

Rate of return is stated semi annually or annually to help comparison among the different investment alternatives. If it is stock, the investor gets the dividend as well as the capital appreciation as returns. Market return of the stock indicates the price appreciation for the particular stock. If a particular share is purchased in 1998 at Rs.50, disposed at Rs.60 in 1999 and the dividend yield is Rs.5,then the return would be calculated as follows.

Return=

Capital appreciation & dividend  x 100

                            Purchase price

 Return=          10+ 5  x 100 = 30%

                           50

Risk   Risk of holding securities is related with probability of actual return becoming less than the expected return. The word is synonymous with the phrase variability of return. Investment `risk is just as important as measuring its expected rate of return because minimizing risk and maximizing the rate of return are interrelated objectives in the investment management. An investment whose rate of return varies widely from period to period is risky then whose return that  

dose not change much. Every investor likes to reduce the risk of his investment by proper combination of different securities.

LIQUIDITY  Marketability of the investment provided liquidity to the investment.

The liquidity depends upon the marketing and trading facility. If a portion of the emergencies. Stocks are liquid only if they command good market by providing adequate return through dividends and capital appreciation.

Hedge against inflation

Since there is inflation in almost all the economy, The Rate of return should ensure a cover against the inflation. The return rate should be higher than the rate of inflation, otherwise the investor will have loss in real terms. Growth stocks would appreciate in their values overtime and provide a protection against inflation. The return thus earned should assure the safety of the principal amount, regular flow of income and be a hedge against inflation.

Safety

The selected investment avenue should be under the legal and regulatory frame work. If it is not under the legal frame work, it is difficult to represent the grievances, if any. Approval of the law itself adds a flavor of safety. Even though by law, the safety of the principal differs from one mode of investment to another. Investment  done with the government assure more safety than with the private party. From the safety point of view investment can be ranked as follows bank deposits, government bonds, UTI units, non-convertible debenture, convertible debentures, equity shares, and deposits with the non-banking financial companies.