Why The Investment Needs of an Investor ?

The investment needs of an investor are simply his lifestyle needs converted into financial terms. These include the normal living expenses, accommodation, food, as well as education, health, recreation, transport, special occasions like marriages, festivals etc. These needs are defined not only in current terms but also over the rest of the life. These needs tend to remain the same over the years. It is the current lifestyle and the lifestyle desired in future that determines the attitude of investor towards investments.

By and large, most investors have eight common needs from their investments:               1.

Security of Original Capital; 2. Wealth Accumulation; 3. Comfort Factor; 4. Tax Efficiency; 5. Life Cover; 6. Income; 7. Simplicity; 8. Ease of Withdrawal; 9. Communication.

• Security of original capital: The chance of losing some capital has been a primary need. This is perhaps the strongest need among investors in India, who have suffered regularly due to failures of the financial system.
• Wealth accumulation: This is largely a factor of investment performance, including both short-term performance of an investment and long-term performance of a portfolio. Wealth accumulation is the ultimate measure of the success of an investment decision.
• Comfort factor: This refers to the peace of mind associated with an investment. Avoiding discomfort is probably a greater need than receiving comfort. Reputation plays an important part in delivering the comfort factor.
• Tax efficiency: Legitimate reduction in the amount of tax payable is an important part of the Indian psyche. Every rupee saved in taxes goes towards wealth accumulation.
• Life Cover: Many investors look for investments that offer good return with adequate life cover to manage the situations in case of any eventualities.
• Income: This refers to money distributed at intervals by an investment, which are usually used by the investor for meeting regular expenses. Income needs tend to be fairly constant because they are related to lifestyle and are well understood by investors.
• Simplicity: Investment instruments are complex, but investors need to understand what is being done with their money. A planner should also deliver simplicity to investors.
• Ease of withdrawal: This refers to the ability to invest long term but withdraw funds when desired. This is strongly linked to a sense of ownership. It is normally triggered by a need to spend capital, change investments or cater to changes in other needs. Access to a long-term investment at short notice can only be had at a substantial cost.
• Communication: This refers to informing and educating investors about the purpose and progress of their investments. The need to communicate increases when investments are threatened.

It is also pertinent to differentiate between needs and wants. Wants can be described as transient needs. Wants focus on the short-term, and often lead to long-term investment disappointment.

•  Security of original capital is more important when performance falls.
•  Performance is more important when investments are performing well.
• Failures engender a desire for an increase in the comfort factor.

Perfect investment would have been achieved if all the above-mentioned needs had been met to satisfaction. But there is always a trade-off involved in making investments. As long as the investment strategy matches the needs of investor according to the priority assigned to them, he should be happy.

The Ideal Investment strategy should be a customized one for each investor depending on his risk-return profile, his satisfaction level, his income, and his expectations. Accurate planning gives accurate results. And for that there must be an efficient and trustworthy roadmap to achieve the ultimate goal of wealth maximization.