The investor, to be certain of the safety of principal, should carefully review the economic and industry trends before choosing the types of investment. Errors are avoidable and, therefore, to ensure safety of principal, the investor should consider diversification of assets.
Adequate diversification involves mixing investment commitments by industry, geographically, by management, by financial type and by maturities. A proper combination of these factors would reduce losses. Diversification to a great extent helps in proper investment programmes but it must be reasonably accomplished and should not be carried out to extremes.
Capital appreciation is an important feature of every investment tool. Every investment is expected to rise in its value over a period of time which is a key determinant for making deploying funds in it. Investors should properly forecast which assets are expected to appreciate in the future and make timely purchases of them.
Safety of principal
Safety of funds invested is one of the essential ingredients of a good investment programme. Safety of principal signifies protection against any possible loss under the changing conditions. Safety of principal can be achieved through a careful review of economic and industrial trends before choosing the type of investment. It is clear that no one can make a forecast of future economic conditions with utmost precision. To safeguard against certain errors that may creep in while making an investment decision, extensive diversification is suggested.
The main objective of diversification is the reduction of risk in the loss of capital and income. A diversified portfolio is less risky than holding a single portfolio.
Even investor requires a minimum liquidity in his investments to meet emergencies. Liquidity will be ensured if the investor buys a proportion of readily saleable securities out of his total portfolio. He may, therefore, keep a small proportion of cash, fixed deposits and units which can be immediately made liquid investments like stocks and property or real estate cannot ensure immediate liquidity.
Marketability refers to the ease with which the investment securities can be purchased and sold or can be transferred in the market. This feature of investment tools determines their value as assets with better marketability are preferred more by the people looking for the investment.
Expectation Of Return
The investment provides returns from time to time to investors which varies as per the market conditions. It is the amount expected by people for deploying their funds for a particular period of time in a set of assets. It is the main objective of every investment and every investor expects a stable and regular return from their investment.
Tax implications on the income provided by investment programs are seriously taken into consideration by investors. The real return earned by people is one that is left after paying income tax. While deciding an investment option, the burden of taxes on its income is an important determinant analyzed by investors. He should choose such investment securities which put less tax burden and maximize its return.
Purchasing Power Stability
Every investor before making an investment considers the future purchasing power of their funds. In order to maintain the stability of purchasing power, he ensures that the money value of the investment should increase in accordance with rising in price levels to avoid any chance of losing money.