Investment

FEATURES OF INVESTMENT

Investment needs of different investors don’t have any standard pattern. They differ from investor to investor. However, all investors have four tasks in common. First, they must determine their investment objectives clearly. Secondly, they must decide upon the types of investments to be used and the proportions of each to be acquired. Thirdly, they select investments of the desired types. And finally, they should study the long run values of suitable investments and time their purchase and sales accordingly. This four-fold task is the essence of successful investment management for an investor.

While making an investment decision, the investors should consider a number of features which their portfolios should posses. Thus, a successful investor should take into account the following twelve features in- order to choose specific investments.

1. Safety of Principal

One of the investment objectives is safety of principal though the safety is

not absolute or complete. An investor should carefully review the economic and industry trends before choosing the type of investment or the time of investment or the time of investment to ascertain safety of principal. He should avoid unsound and profit-less risks. Since errors are unavoidable, to ensure safety of principal, an investor should go for extensive diversification of assets.

Diversification can be vertical or horizontal. Vertical diversification occurs when securities of various companies engaged in different phases of production, from raw material to finished goods, are held in the portfolio. Whereas, horizontal diversification occurs when the portfolio contains the securities of various companies, which are in the same stage of production. Another way to diversify securities is to classify then according to bonds and stocks. These can, again, be classified according to issuers, dividend or interest earned, products of a firm, etc....