Objectives of Investing – Safety, Income & Growth
Every investor wants high returns with zero risk. Sadly, that unicorn doesn't exist. Investment objectives usually fall into three buckets, and you often have to trade one for another.
The Iron Triangle of Investing
You can usually pick two of these three features:
- Safety
- Income (Liquidity)
- Growth
1. Safety of Principal (Preservation)
The primary goal is that the invested amount (Principal) should not diminish.
- Meaning: If I invest ₹100, I must get back at least ₹100.
- Suitable for: Short-term goals, Emergency funds, Retirees.
- Instruments: Bank Fixed Deposits, Govt Bonds (G-Secs), PPF.
- Trade-off: Low Returns (often below inflation).
2. Regular Income (Cash Flow)
The goal is to generate a steady stream of cash payouts.
- Meaning: I want monthly/quarterly money to pay bills.
- Suitable for: Retired persons, Paying for education fees.
- Instruments:
- Dividend Yield Stocks: Companies sharing profits.
- Rent: From Real Estate.
- Monthly Income Schemes (MIS): Post Office/Banks.
- Bonds: Annual Interest (Coupon).
- Trade-off: Moderate Growth.
3. Capital Appreciation (Growth)
The goal is to increase the value of the investment over time.
- Meaning: I invest ₹100 today hoping it becomes ₹500 in 10 years. I don't need cash now.
- Suitable for: Young investors, Long-term goals (Retirement/Wealth creation).
- Instruments: Equity Mutual Funds, Growth Stocks, Real Estate (Land), Gold.
- Trade-off: High Risk (Short-term volatility). The value can drop to ₹80 temporarily.
Balancing the Objectives
Asset Allocation puts pieces of your money into different buckets based on objectives.
| Objective | Allocation for 25-Year Old | Allocation for 65-Year Old |
|---|---|---|
| Growth (Equity) | 70% (To build wealth) | 30% (To beat inflation) |
| Safety/Income (Debt) | 30% (For stability) | 70% (For Monthly expenses) |
Risk vs Return Relationship
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Rule: If an investment promises High Return with Low Risk, it is likely a Scam.
Summary
- Safety: Keeps money safe (FD).
- Income: Pays bills today (Rent/Interest).
- Growth: Builds wealth for tomorrow (Stocks).
- Trade-off: You cannot have maximum safety and maximum growth simultaneously. You must prioritize based on your goal horizon.
Quiz Time! 🎯
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