The document discusses investment objectives and the investment process. The primary objectives of investment are to increase returns while reducing risk. Other objectives include earning income through dividends or interest and achieving capital appreciation through conservative, aggressive, or speculative growth. The investment process involves setting an investment policy, analyzing investment vehicles, forming a diversified portfolio, revising the portfolio, and evaluating performance. The steps in investing are meeting prerequisites, establishing goals, adopting an investment plan, evaluating vehicles, selecting investments, constructing a diversified portfolio, and managing the portfolio.

1. Investment objectives
The primary objective of investment is to increase the rate of return and to
reduce the risk. The other objectives are:
 Income:- Main objective is to earn income in form of dividend yield or
interest. Investment should earn reasonable and expected return on the
investment.
 Capital appreciation:-The other important objective of investment is
appreciation in the capital invested over a period of time. Capital
appreciation can be achieved by following:-
 Conservative Growth
 Aggressive Growth
 Speculation

2. The Investment Process

3. Investment Process
• Process of managing money or funds
• It explains how an investor should go about making
decisions
– Setting the investment policy
– Analysis and evaluation of investment vehicles
– Formation of diversified investment portfolio
– Portfolio revision
– Measurement and evaluation of portfolio performance

4.  Forms Of Return :- The returns expected from securities may be of two types :-
 Periodical Cash Receipts
 Capital Gain
 Safety and Security Of Funds:- Another important consideration in making investment
is that fund so invested should be safe and secure . The investment should be capable for
redemption as and when due.
 Liquidity:- Before making the investment, the investor should consider the degree of
liquidity require. Certain securities are capable of being sold in the readily available
market and some securities may not be so liquid.
 Tax considerations:- Before making the investment, investors should also take into
consideration the provisions of income tax, capital gain tax and wealth tax to minimize
his tax burden and avail all tax exemptions available to him.

5. Steps in Investing
• Step 1: Meeting Investment Prerequisites
a. Make certain necessities of life are provided for
b. Adequate protection against losses from death,
illness and disability
• Step 2: Establishing Investment Goals
Examples include:
a. Accumulating retirement funds
b. Enhancing current income
c. Saving for major expenditures
d. Sheltering income from taxes

6. Steps in Investing (cont'd)
• Step 3: Adopting an Investment Plan
a. Develop a written investment plan
b. Specify target date and risk tolerance for each goal
• Step 4: Evaluating Investment Vehicles
a. Assess potential return and risk
b. Chapter 4 will cover risk in detail
• Step 5: Selecting Suitable Investments
a. Research and gather information on
specific investments
b. Make investment selections
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7. Steps in Investing (cont'd)
• Step 6: Constructing a Diversified Portfolio
a. Use portfolio comprised of different investments
b. Diversification can increase returns or decrease risks
(Chapter 5 will cover diversification in detail)
• Step 7: Managing the Portfolio
a. Compare actual behavior with expected performance
b. Take corrective action when needed
Copyright © 2005 Pearson Addison-Wesley.
All rights reserved.
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