INVESTMENT ATTRIBUTES : Every investor has certain specific objectives to achieve
through his long term/short term investment. Such objectives may be monetary/financial or
personal in character. The objectives include safety and security of the funds invested
(principal amount), profitability (through interest, dividend and capital appreciation) and
liquidity (convertibility into cash as and when required). These objectives are universal in
character as every investor will like to have a fair balance of these three financial
objectives. An investor will not like to take undue risk about his principal amount even
when the interest rate offered is extremely attractive. These objectives or factors are
known as investment attributes.
There are personal objectives which are given due consideration by every investor while
selecting suitable avenues for investment. Personal objectives may be like provision for
old age and sickness, provision for house construction, provision for education and
marriage of children and finally provision for dependents including wife, parents or
physically handicapped member of the family.
Investment avenue selected should be suitable for achieving both the objectives (financial
and personal) decided. Merits and demerits of various investment avenues need to be
considered in the context of such investment objectives.
(1) Period of Investment : Period of investment is one major consideration while
selecting avenue for investment. Such period may be short (upto one year), medium
(one to three years) or long (more than three years). Return/rate of interest is
normally more in the case of longer term investment while it is less in the shorter
period investment. The period of investment relates to liquidity. An investor has to
decide when he needs money back and adjust the period accordingly. LIC policy is
an investment for a very long period. Balance in the savings bank account is a short
term investment with highest liquidity but lowest rate of return.
(2) Risk in Investment : Risk is another factor which needs careful consideration while
selecting the avenue for investment. Risk is a normal feature of every investment as
an investor has to part with his money immediately and has to collect it back with
some benefit in due course. The risk may be more in some investment avenues and
less in others.
The risk in the investment may be related to non-payment of principal amount or
interest thereon. In addition, liquidity risk, inflation risk, market risk, business risk,
political risk, etc. are some more risks connected with the investment made. The risk
in investment depends on various factors. For example, the risk is more, if the period
of maturity is longer. Similarly, the risk is less in the case of debt instrument (e.g.,
debenture) and more in the case of ownership instrument (e.g., equity share). In
addition, the risk is less if the borrower is creditworthy or the agency issuing security
is creditworthy. It is always desirable to select an investment avenue where the risk
involved is minimum/comparatively less. Thus, the objective of an investor should be
to minimise the risk and to maximise the return out of the investment made.