ABL Asset Management Company Limited

Determine Your Investment Profile

Determine Your Investment Profile

Determine Your Investment Profile

To be successful with investing, it’s important to determine what type of investor we are, which is sometimes called our Investor profile.” Whether saving for the future or enjoying retirement, our Interactive Investor Profiler can assist in matching the portfolio that is unique to you according to your time frame and the amount of risk you are willing to assume.

Factors to Consider

Many people typically have different investment goals. Imagine different savings objectives, saving for an overseas holiday, and saving for retirement at the same time. So depending on what we need to achieve, we can have separate investor profiles to match each goal. Considering the Four Elements can help us understand and get an idea of what results we can expect from our investments.

  • Duration
  • Returns — income or growth?
  • Liquidity
  • Risk
 
When considering…Ask…
DurationHow long do I want to invest for to achieve my investment goals?
ReturnsDo I want income and/or growth?
LiquidityDo I have immediate liquidity requirements?
RiskWhat balance of risk and reward is right for me?

Duration

Duration means how long we want to invest for

  • Short term – < 1 year
  • Medium term – 3 to 5 years
  • Long term – over 5 years

With respect to your risk profile, you would normally want to select a longer investment horizon if you are investing in riskier instruments such as stocks, while a shorter investment horizon will be selected if you are investing in conservative instruments such as money market instruments. Saving for an overseas trip in a year’s time is a short-term investment. So it’s important to be able to get it when we need it.

  • Saving for the down payment to buy a house in three to five years’ time is an example of a medium-term investment.
  • Saving for your retirement is usually a long-term investment

Over a longer period of time horizon we’ll be more interested in capital growth. This is when the value of our investment (our capital) grows. If we invested Rs.100,000 in shares last year that are worth Rs.110,000 this year, our capital growth is Rs.10,000, or 10%.

Returns

To work out the most suitable type of returns, we need to decide if income or growth is a bigger priority. We could ask:

Do I want to use the money my investment earns as income to live off during the duration of the investment?

Do I want to reinvest it with the original amount, and grow my lump sum as much as possible?

  • If you are seeking current income, then you may want to opt for a product that aims to preserve your principal value while providing you regular income. In this case a suitable option will be to invest in a Money Market Fund or an Income Fund.
  • If you are looking for capital appreciation, you may select an instrument that aims to provide capital growth over the long term. In this case, a suitable option can be an equity fund.

Liquidity

Liquidity refers to the ability to quickly convert an asset or security or an investment into cash at the marketplace, without significantly affecting its price.

Real Estate, Commodities, etc. are usually considered illiquid investments, while cash at bank or with mutual funds, etc. are generally considered to be fairly liquid. Liquidity means how quickly we can convert our investment into cash before the end of the investment period.

A ‘high-liquidity’ investment means we can get at our investment anytime. A bank savings account is an example. Open end mutual fund unitholders can readily convert their units into cash by redeeming their units. Investors do not have to find a buyer, the fund buys back (redeems) the units at the current NAV

Risk

Your risk tolerance level is a key element to defining your investor profile since Risk and Reward is the classic investor’s balancing act.

If high returns are not your priority and your objectives consist of earning regular income and preserving your capital, a portfolio of low-risk investments that provide stability may be the perfect solution for you.

If, however, you are starting to build a retirement nest and investing over the long term, you may be willing to take higher level of risk on your portfolio to boost its growth potential.

The higher the risk you take, the higher returns you could potentially receive, but the more chance you have of your investments losing value, fluctuating in value, or failing entirely.

With a low-risk investment, you generally know the range of return you will receive right up front but compared to riskier investments, like equities, the return is not very high. The risks come in two types:

  • Volatility:The possibility that the value of your investment will fluctuate in either direction.
  • Performance: The possibility that the investment could fail and you lose all or part of your money – or the investment gives you a lower return than what you expected.

If considering high-risk investments, be sure to balance the risks with other investments in lower risk areas.

Tax Considerations

In many investment decisions, minimizing taxes, or avoiding them altogether, is a major concern. While tax avoidance should not determine all of your investment decisions, it is important that you should consider tax consequences. Taxes are many times overlooked, but capital gains can have a big impact on investment results. Different types of capital gains are taxed at different rates. This needs to be taken into account when making investing decisions.

Some taxable investments are more tax-friendly than others are. Tax savings is the name of the game when it comes to investing for retirement and Voluntary Pension Schemes (VPS) is a good choice. Participants of VPS are eligible to Tax Credit under Section 63 of Income Tax Ordinance, 2001. Read more for a better understanding of the Tax Credit Benefit