Investors are people or firms with surplus funds which they want to invest. The ideal investment for any one is that which offers perfect security, maximum income and perfect liquidity.
It is not easy to achieve all these objectives of investment as investments with greater liquidity and security, do not give higher income and vice versa. The investor is therefore forced to make decisions with regard to the best investment to venture into.
In making the decision, the investor is guided by some principles which are called principles of investment and they are as described below:
1. THE PRINCIPLE OF SECURITY
If the amount invested will be safe, then more will be invested in the given line of investment. Government securities are considered to be more secure hence they are highly invested in.
2. THE PRINCIPLE OF LIQUIDITY
If the amount invested can be easily converted into cash, the investors will be encouraged and they will invest more in that line of investment.
3. THE PRINCIPLE OF GROWTH
An ideal investment must grow. This means that the amount invested must increase with time.
4. THE PRINCIPLE OF INCOME
The funds are invested to make money. Income is the return on investment in the form of interest or dividend.
Investment will be formerly made in that project where the rate of return on investment is greater.
5. THE PRINCIPLE OF SPREADING RISK
The investment must be spread over several types of securities. It is risky to invest all funds into one type of security.
The policy of the spread of investment is known as a Portfolio.
Bearing in mind the above guidelines will surely boost your correct decision making; when you want to invest your funds in the capital and money markets.
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