Understanding Capital Appreciation and its Importance

Proficiency in financial planning doesn't depends only upon making high returns from your investments. It also depends equally in accomplishing proper balance between other four important criteria viz. safety, profitability, liquidity and capital appreciation. Eventually, money is worth of what it can buy. Appreciation in the value of your capital investment is consequently very significant during inflationary times when purchasing power of money is constantly eroded because of rising prices.

Even Though relative importance of these criteria may be different depending upon your conditions, you must consider them before investing your money.

Gold investment, Real Estate, Equity Shares and Convertible Debentures of good companies offer a partial hedge against inflation. Understand how capital appreciation affects your future returns before deciding on where to invest money.

Don’t go in for an apparently profitable Best investment plans if it has high investment risks and is not safe. Likewise don’t ever lookup your entire money in liquid assets and also don’t pull it all in liquid assets, after all you have to earn a profit too, to cover up the wearing down in the purchasing power. Liquid investments are generally not so profitable. Diversify your investments in various portfolios to reduce investment risks and also increase returns.

The relative importance of these criteria may be different depending upon your conditions. A retired person with substantial savings may not think about very much for capital appreciation and think about investment risks. A young person with a regular salaried income may be concerned for income from growth-oriented investments plans. A person loaded with profound family commitments towards parents, siblings and children may give a higher priority to liquidity of investments. A first generation investor from a rural or semi-urban backdrop may give more importance to safety as the most significant objective. An investor in a high tax bracket may wish capital appreciation to regular income and shortly.

The important point to note down is that there are different investment criteria for different people. The very first, and vital step, is to evidently spell out for yourself what your objectives are. These have then to be cautiously balanced through a skilful process of investment planning and money management.