Objective of Investment
An investor has several alternative avenues of investment for his savings to flow to. Keeping savings as cash is barren as it do not earn anything. Thus, savings are invested in assets looking at their risk and return features. The aim of the investor is to maximize the return and minimize the risk involved in the investment.
The savings kept as cash, are not only barren, but also loses its value to the level, due to of rise in prices. Hence, inflation of rise in prices erodes the value of money. Savings are invested to get a hedge or protection against inflation.
The actual rate of return would be negative, if the investment cannot earn as much as the rise in prices. Thus, if inflation is at an average annual rate of ten percent, then the return from an investment should be over ten percent to accelerate savings to flow into investment.
Thus, the aim of an investor can be stated as:
1. Maximizing return
2. Minimizing risk
3. Hedge against inflation.
Major features of Investment
A) Return
B) Risk
C) Safety
D) Liquidity
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