Question

discuss briefly the characteristics and typical investment objectives and constraints of various institutional investors

Answer 1

Investment Objective:

The investment objectives are related to what the clients want to achieve with the portfolio of investment.

There are five major objectives which all investors want to achieve depending on their risk taking capacity.

1. Growth

2. Regular Income

3. Safety

4. Tax Planning

5. Liquidity

1. Growth: These are the following options where one can grow their investment:

a. Equity

b. Commodity

c. Real Estate

d. Art Objects

e. Derivative

2. Regular Income:

a. Bank

b. Post Office

c. Bond

3. Safety:

a. Bank

b. Post Office

c. Bond (Govt. Securities)

d. Insurance

4. Tax Planning:

a. Bank

b. Post Office

c. Bond

d. Insurance

e. ELSS mutual fund

5. Liquidity:

a. Bank Deposit

b. Money Market instrument ( Treasury bill, Certificate of deposit, etc)

c. Derivatives

Constraints:

1. Time Horizon: These constraints are related to time periods over which investors keep their investment to expect better return from their portfolio in future.

2. Tax: These constrainst depend on when and how returns of different types are taxed. For eg.

Short term Capital gain, Long term capital gain for both equity and debt related investment.

3. Legal and regulatory: These constraints usually specify which asset classes are not permitted for investments or any restrictions on asset allocations to certain investment classes.

For eg. in case of treasury bill, minimum investment is Rs25000 or multiple.

4. Liquidity: Such constraints are associated with cash requirement at a specific time in future.