Investment Objective

The investment objective is the most important aspect of a Mutual Fund scheme that outlines the financial objective the scheme intends to achieve and spells out the level of risk it is likely to assume, while trying to achieve this objective. Thus, the investment objective of a Mutual Fund scheme helps investors decide,

• If the scheme is suitable for their financial goal
• The level of risk they should be comfortable with and
• The time horizon for which investors must consider staying invested in the scheme if they plan to invest their money in the scheme

The scheme’s investment objective helps investors in deciding if the scheme is suitable for their portfolio or not. In short, the investment objective of a scheme attracts like-minded investors, who share a common investment goal and have similar risk and time horizon preferences.

The kind of securities held in a scheme’s portfolio are determined by the investment objective of the scheme. The objective could be capital appreciation over the long-term or regular income generation or capital protection or something else. The fund manager will follow an investment style that is in sync with the scheme’s stated investment objective.

For instance, the investment objective of a well-diversified equity folio may read as follows:

The investment objective of ABC Fund is to provide growth of capital plus regular dividend through a diversified portfolio of equities, fixed income securities and money market instruments.

As evident from the investment objective, ABC Fund will invest in large, mid and small-cap stocks thus providing diversification. Since the objective of this fund is capital growth along with regular income, the fund will invest in a mix of stocks and fixed income securities like bonds and money market instruments like Commercial Papers, T-bills, etc. Also, this kind of an objective would require investors to be prepared for a long holding period since investing in equities especially in the small and mid-cap segment requires at least a 5-year tenure. The scheme is likely to carry moderate to high risk since it will invest primarily in equities across capitalisation i.e. large, mid and small caps.

A Mutual Fund cannot change the investment objective of any of its scheme without prior approval from the trustees and informing the existing investors about the same. The investors are given a choice to exit the scheme without any charges within a specified period before the scheme’s investment objective can undergo a change.