What are the Elements of Investments?

ELEMENTS OF INVESTMENTS :
(a) Return : Investors buy or sell financial instruments in order to earn return on them.
The return on investment is the reward to the investors. The return includes both
current income and capital gains or losses, which arises by the increase or decrease
of the security price.
(b) Risk : Risk is the chance of loss due to variability of returns on an investment. In
case of every investment, there is a chance of loss. It may be loss of interest,
dividend or principal amount of investment. However, risk and return are inseparable.
Return is a precise statistical term and it is measurable. But the risk is not precise
statistical term. However, the risk can be quantified. The investment process should
be considered in terms of both risk and return.
(c) Time : Time is an important factor in investment. It offers several different courses of
action. Time period depends on the attitude of the investor who follows a ‘buy and
hold’ Policy. As time moves on, analysts believe that conditions may change and
investors may revaluate expected return and risk for each investment.
(d) Liquidity : Liquidity is also important factor to be considered while making an
investment. Liquidity refers to the ability of an investment to be converted into cash
as and when required. The investor wants his money back any time. Therefore, the
investment should provide liquidity to the investor.
(e) Tax Saving : The investors should get the benefit of tax exemption from the
investments. There are certain investments which provide tax exemption to the
investor. The tax saving investments increase the return on investment. Therefore,
the investors should also think of saving income tax and invest money in order to
maximise the return on investment.