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Choosing an Investment product is the most difficult decision for an Investor. Investments in products are nothing less than a marriage wherein a number of factors need to be considered before one takes the final decision: Return: This is the first factor to be considered while making an investment decision. Depending on the returns one expects to earn, the investment is chosen. Equities offer higher returns compared to deposits, but they also have a higher volatility associated with them. One cardinal rule for investors here is, Higher the Risk, Higher the Return one can expect on his investments. Risk: Risk refers to variability in returns. The risk associated with an investment is an equally important factor and is ignored by investors at times. Investors, sometimes, choose a product with a higher return without looking at the associated risks. Ex: If Product A offers a 15% return with an 18% risk(measured by Standard deviation) and Product B offers 16% with a 25% risk. Though Product B yields a higher return, Product A is better than Product B on a risk-adjusted basis. Investment Constraints The amount of risk that an investor can take in search for returns is affected by the following factors: Time Horizon: A longer time horizon enables an investor to take higher risk. A long term horizon evens out the volatility associated with equities and real estate investments. If the investor needs to withdraw the money in the near term, it is better to invest in debt instruments which offers a lower return but have a higher degree of certainty with the investment. Liquidity: Liquidity refers to the ability to sell an investment at a fair value with minimum associated costs. Equities score over Real Estate investments in this parameter. One can sell equity investments at the prevailing market price and receive the sale proceeds in a couple of days(T+2). Real estate investments suffer from the unavailability of their market price and have large transaction costs. Taxation: Taxation has an impact on reducing the net returns in the hands of the investors to the extent of taxes paid to the government. Returns from various investments should always be evaluated post-tax. Ex: Holding other factors constant, if a Fixed Deposit offers 10% taxable and the PPF offers 8% tax-free rate of return, for an investor who pays tax at the 30% slab rate, the PPF offers higher post-tax returns. Regulatory Issues and Other factors: Regulatory factors may impose restrictions on the minimum and maximum amount that can be invested in a product. A certain category of investors is not allowed to invest in certain instruments. For example, Only senior citizens can invest in the Senior Citizen Savings(SCSS) (Refer ) and up to a maximum of INR 15,00,000 only. Anticipatory changes in regulatory factors also have an impact on the choice of investments. While making an investment decision, an investor needs to consider all the above factors in sync with each other. Keeping in mind the above factors, the properties of the various Investment products need to be matched with the goals of the investor for a perfect marriage.