Investment Objective

Like every successful relationship, your investment plans also depend on how well you know yourself and what you want from it. That you want to earn money is an obvious conclusion, but why, how and when are vital points to be considered. Not every investor comes from the same background or has the same needs.

It is essential to examine your investment objective when you embark on this financial journey. People have different reasons to invest; it could be to make provisions for retirement, a new house or maybe just to make some extra buck. How you structure your investment portfolio depends on your investment objective. Your current income, amount of capital available, time-frame, risk appetite and other factors are taken into consideration in achieving your objective.


Therefore A would need an investment that gives an approximate annual return rate of 16% to reach his objective.

This is known as Implicit Return or Implied Return; that is the rate of return needed from your investment to achieve your financial goal in a specified time-frame. As you can see from A's example, savings would not be enough to cover his needs. He would need to invest and equities could give him much higher returns over a period of time. If he cannot stomach the risk associated with investing solely in the volatile equity market, mutual funds would be the best bet as they provide the growth of equities while providing enough measures to reduce or minimize the risk associated with equities.

Objectives can be of short, medium and long term. It is generally assumed that a short term investment would be for a period of 1 year; medium term, a period of 3-5 years; and long term, 7 years and above. The shorter the time horizon, the more conservative your investments need to be, for e.g., debt instruments; long term investing allows you the luxury to play around with more volatile and profitable investment vehicles in your portfolio (equities).