Investment and Portfolio Management Quiz

Investment Concepts

• Investments are assets acquired to generate income or appreciation over time.
• Appreciation is defined as an increase in the value of an asset.
• The primary intent behind purchasing an investment is to build future wealth rather than immediate consumption.

Definition of Investment

• Investment involves allocating money with the expectation of profit or an additional income source.
• Investments create assets intended for financial growth, aiding in income shortages, retirement savings, loan repayments, or tuition fees.

Portfolio Management

• Defined as the strategy of selecting an investment policy that balances risk and return effectively.
• Involves managing various assets like bonds, shares, cash, and mutual funds for maximum profitability within a designated timeframe.
• Can be conducted under the guidance of portfolio managers for effective money management.

Objectives of Investment

• To Keep Money Safe:

  • Capital preservation ensures hard-earned money retains its value over time.
  • Safe investments include fixed deposits, government bonds, and savings accounts, often yielding lower returns.

• To Help Money Grow:

  • Long-term capital appreciation aims to build a substantial financial corpus.
  • Higher-return investments entail real estate, mutual funds, commodities, and equities, albeit with higher risk.

• To Earn a Steady Stream of Income:

  • Investments can provide consistent secondary or primary income, like fixed deposits with regular interest payments or dividend-paying stocks.
  • These sources aid in meeting daily expenses during retirement or supplementing income during the working years.

• To Minimize the Burden of Tax:

  • Tax benefits from certain investments can reduce taxable income, contributing to lower tax liabilities.
  • Qualifying options include Unit Linked Insurance Plans (ULIPs), Public Provident Fund (PPF), and Equity Linked Savings Schemes (ELSS).

• To Save up for Retirement:

  • Establishing a retirement fund is crucial for financial security in later years when employment may not be sustainable.
  • Investing wisely during working years helps ensure adequate funds are available post-retirement.

• To Meet Financial Goals:

  • Investments can ease the pursuit of both short-term and long-term financial objectives without excessive stress.
  • Certain financial instruments offer short lock-in periods and high liquidity, making them suitable for short-term savings.