Investment- is putting money into something with the expectation of profit.

(In other words,

kapag sinabing investment, you are actually commiting your funds into something in order for
you to get a return and that return is called profit or income. Kaya ka mag iinvest kasi para
kumita, para magkaroon ng profit or income. There is no person or business who will commit
their funds into something na wala silang makukuhang return, that is basically the primary
purpose of having investment that is to get a return on your investment. Kung iseset aside mo
lang yung funds mo, without expecting something in return, you are actually not investing but
you are actually saving. For example, you have 100,000 pesos yung 100,000 pesos mo nilagay
mo siya sa atm that means it is not an investment, that will not gain a return so that means
saving siya not an investment).

INVESTMENT OBJECTIVES

1. Basic Investment Objectives

2. Secondary Investment Objectives

1. Basic Investment Objectives

Any investment decision will be influenced by three objectives:

1. SECURITY-
 Central to any investment objective, we have to basically ensure the safety of the
principal. (Kapag sinabing security we are talking about the safety of our investment, of
course dapat secured ang ating investment
 An investor can afford to lose the return at any given point of time but he cannot afford
to lose the principal itself.
 By identifying the importance of security, we will be able to identify and select the
instrument that meets this criterion.
 The safest investments are usually found in the money market and include securities
such as Treasury bills (T -bills), certificates of deposit, commercial paper or banker’s
acceptance slips or in the fixed income (bond) market in the form of municipal and
other government bonds, and in corporate bonds.
2. LIQUIDITY
 Because we may have to convert our investment back to cash or funds to meet our
unexpected demands and needs, our investments should be highly liquid.
- Liquid means it can easily converted into cash.
- Our investment should be highly liquid because if they cannot come to our rescue,
we may have to borrow or raise funds externally at high cost and at unfavorable
terms and conditions.
 Such liquidity can be favorable only in the case of investment, which has always ready
market and willing buyers and sellers. Such instruments of investment are called highly
liquid investment.
- Highly liquid investment ibig sabihin eto yung investment na sobrang madaling
iconvert into cash.
 3. YIELD

 Yield is best described as the net return out of any investment. ( In other words, kapag
sinabing yield ito yung net return o eto yung net profit out of your investment. Ito yung
babalik sayo kasi you commit funds into something.
 Given the level or kind of security and liquidity of the investment, the appropriate yield
should encourage the investor to go for the investment. (This is the #1 reason kung
bakit nag iinvest ang investor, because he is expecting something in return, that return
is called as yield. Kung walang yield, hindi maeencourage and investor na mag invest.
It is very important na ang yield is normally high, dapat as much as possible ang yield
ay mataas, because if the yield is low compared to the expectation of the investor, he
or she may prefer to avoid such investment and keep the funds in the bank account or
in worst case, in cash form in lockers. The yield is the net return it’s the attraction for
any investment and normally deciding the light yield is the key to any investment.)

A best investment decision will be one which has the best possible compromise among
these three objectives.

RELATIONSHIP AMONG SECURITY, LIQUIDITY AND YIELD

There is a trade-off between risk (security) and (return) yield on the one hand and liquidity and
return (yield) on the other. (Meron daw trade-off between security and yield and merong trade-
off in liquidity and yield.)

- Ang ibig sabihin ng trade off between security and yield is normally, the higher the
risk any investment carries, the greater will be the yield to compensate the possible
loss. Ibig sabihin yung trade-off between risk and return ay the higher the risk, the
higher the return. So kung gusto mo ng mas mataas na return, you have to risk
more and the lower the risk, the lower the return.
- Trade-off between liquidity and return or yield is that when the investment is illiquid,
the returns will be higher, as no normal investor would prefer such investment.
(Ang investment ay should be liquid because If the investment is not liquid, an
investor may have to borrow or raise funds externally at high cost and at
unfavorable returns and conditions. That’s why kung ang investment is illiquid,
walang investor ang may gusto niyan pero kung ang investment kasi is illiquid, mas
mataas ang return. Although ang investor, hindi niya maconvert ang kanyang
investment into cash ng mas madali mataas naman ang return. When the
investment is illiquid the returns will be higher, we can say that when the
investment is liquid the return will be lower.

*SUMMARY – THE HIGHER THE RISK, THE HIGHER THE RETURN. THE LOWER
THE RISK, THE LOWER THE RETURN. WHEN THE INVESTMENT IS ILLIQUID THE
RETURN WILL BE HIGHER, WHEN THE INVESTMENT IS LIQUID, THE RETURN
WILL BE LOWER.

Secondary Investment Objectives

1. Tax minimization

2. Marketability
1. Tax minimization

- An investor may pursue certain investments in order to adopt tax minimization as part of
his or her strategy. A highly paid executive, for example may want to seek investments
with favorable tax treatment in order to lessen his or her overall income tax burden.
- You must be aware that tax minimization is legal. ( Ang illegal ay yung tinatawag na tax
evasion.)
- Kapag sinabing tax minimization it is otherwise known as tax avoidance. It refers to any
act or trick that reduces or totally escapes taxes by any legal permissible ,means. This
may be done by selecting tax options allowed by the law which minimizes tax liability or
by careful tax planning to reduce tax exposure.
- Ang ginagawa sa tax minimization ay pinag aaralan ng mabuti yung mga tax laws and
by careful planning and selecting tax options na inallow ng batas malelessen or
magdedecrease yung kanilang tax liability, magdedecrease or mababawasan yung
babayaran nila sa bureau of internal revenue. Since yung pagselect nila ng tax options is
allowable naman ng law, ang tax minimization or tax avoidance ay legal because that is
allowed by the law. Yung illegal ay yung tax evasion. Tax evasion is otherwise know as
tax dodging. It refers to any act or trick tend to illegally reduce or avoid payment or tax.
This can be perpetrated by undue understatement of income, overstatement of expense
or non-declaration of income.
Example of tax evasion:
- Non- declaration of income ibig sabihin, hindi dinedeclare ng tax payer ang kanilang
income o ang kanilang totoong income sa income tax return and that’s whats makes tax
evasion illegal because tax payers must declare all of their income sa income tax return.
Specifically yung mga active income nila.
- Undue understatement of income inig sabihin kulang yung nilalagay na income ng tax
payers dun sa kanilang statement of profit or loss or otherwise known as income
statement. ( Kapag kulang kasi yung income sa income statement that means kulang
ang kanilang net income, mababawasan ang kanilang net income so that means
mababawasan din ang tax na babayaran nila sa BIR.
- Overstatement of expense ang effect neto sa net income ng tax payer is that
dinedecrease niya o binabawasan niya yung net income ng tax payer and as a result
mas kokonti yung babayaran na tax ng tax payer sa BIR.
- Both understatement of income and overstatement of income will decrease the net
income of the tax payer. That’s why those cases, non declaration of income, undue
statement of income at overstatement of income ay tax evasion and as a result tax
evasion is illegal.

2. MARKETABILITY

Kapag sinabing marketability is that the investment can be sold at any time.

Example, if you are a shareholder of a corporation, now yung shares mo ay marketable kasi
nga at any point of time pwede mong mabenta yung shares mo. That’s the meaning of
marketability.

SUMMARY OF INVESTMENT OBJECTIVES

The basic investment objectives are security, liquidity and yield. The secondary investment
objectives are tax minimization and markertability.
 Characteristics of Good Investment

1. Objective Fulfillment

2. Safety

3. Return

4. Liquidity

5. Hedge against Inflation

6. Concealability

7. Tax Shield

1. Objective Fulfillment

 an investment should fulfill the objective of the investors.

 Every individual has a definite objective in making an investment.

 When the investment objective is contrasted with the uncertainty involved with investments,
the fulfillment of the objectives through the chosen investment avenue could become
complex.

2. Safety

 The first and foremost concern of any ordinary investor is that his investment should be
safe. That is he should get back the principal at the end of the maturity period of the
investment.

 There is no absolute safety in any investment, except probably in the investment in

government securities or such instruments where the repayment of interest in principal is
guaranteed by the government.

3. Return

 The return on any investment is expectedly consistent with the extent of risk assumed by
the investor.

 Risk and return go together. The higher the risk, the higher the chances of getting higher
return.

 An investment in a low-risk, high safety investment like investment in government securities

will obviously get the investor only low returns.

4. Liquidity

 Given a choice, investors would prefer a liquid investment than a higher-return investment.
 Because the investment climate and market conditions may change or investor may be
confronted by an urgent unforeseen commitment for which he might need funds, and if he
can dispose of his investment without suffering unduly in terms of loss of returns, he would
preferthe liquid investment.

5. Hedge against Inflation

 Inflation is the general rise in the price level in an economy over a period of time.

 The purchasing power of money deteriorates heavily in a country which is not efficient or
not well endowed, in relation to another country.

 Investors, who save for the long term, look for hedge against inflation so that their
investmens are not undoly eroded.

6. Concealability

 Investors would like to keep their investments confidential so that their investments made
for their old age/ uncertain future do not become a hunting ground for their own lives.

7. Tax Shield

 Investment decisions are highly influenced by the tax system in the country.

 Investors look for tax incentives while making an investment and also tax reliefs while
reaping the benefit of their investments.

 If investors were to pay taxes on the income earned from investments, they look for higher
return in such investments so that their after-tax income is comparable to the pre-tax
equivalent level with some other income which is free of tax, but is more risky.