What is Investment?

Investment can be defined allocating money to assets with the hope that in the future it would provide some benefit such as generation of income. Property and gold are some common examples of the traditional type of investment. The value of property, gold, mutual funds and shares bought today may see a significant increase in the future.

In the financial industry, investments can be bifurcated into two broad categories, namely traditional and alternative.

Traditional Investments

This is the most popular category of investments which is done by the individual as well as corporates to yield benefits. The following types of investments can be listed in this category.

A. Bonds

The bonds are generally issued by the corporates to raise a higher amount of money, which the banks are incapable of lending. The lender receives a return on its money which he lends to the borrower, i.e corporates.

B. Stocks

Stocks are also known as equity shares, which are issued by the business organization to the general public for raising funds. Stock entitles the shareholder the ownership of the company. In the exchange of money which the business organization receives, the shareholder receives stock certificates.

C. Short term/Cash

Money is invested in short-term, low-risk deposits like certificate of deposit, money market funds or high yield bank deposits. Here the amount invested can be converted to cash at any point of time.

D. Mutual Funds

A mutual fund can be defined an investment scheme that is professionally managed. These schemes are operated by asset management companies where the money of a group of people is invested in bonds, stocks, etc.

E. Fixed Deposit

This is one of the oldest and safest ways to save money in which a fixed amount is kept aside with financial institutions like banks for a fixed number of days, months or years. The rate of return on the money differs with the different timelines which the investor chooses.

Alternative investments

The investors go for various other options beyond stocks and bonds which are investing in acquiring jewellery like gold or other precious stones and metals. Cryptocurrency is another emerging investment option in the modern day.

Thus, investment turns out to be the most important financial decision which each individual or organization has to take in order to yield maximum benefits or profits from the money which is lying unproductive.

Investment Definition in terms of Economics:

According to economic theories, investment is defined as the per-unit production of goods, which have not been consumed, but will however, be used for the purpose of future production.
Examples of this type of investment are tangible goods like the construction of a factory or bridge and intangible goods like 6 months of on-the-job training.
In terms of national production and income, Gross Domestic Product (GDP) has an essential constituent, known as gross investment.

Investment Definition in terms of Business Management:

According to business management theories, investment refers to tangible assets like machinery and equipment and buildings and intangible assets like copyrights or patents and goodwill. The decision for investment is also known as capital budgeting decision, which is regarded as one of the key decisions.

Investment Definition in terms of Finance:

In finance, investment refers to the purchasing of securities or other financial assets from the capital market. It also means buying money market or real properties with high market liquidity. Some examples are gold, silver, real properties, and precious items.
Financial investments are in stocks, bonds, and other types of security investments. Indirect financial investments can also be done with the help of mediators or third parties, such as pension funds, mutual funds, commercial banks, and insurance companies.

Investment Definition in terms of Personal Finance:

According to personal finance theories, an investment is the implementation of money for buying shares, mutual funds or assets with capital risk.

Investment Definition in terms of Real Estate:

According to real estate theories, investment is referred to as money utilized for buying property for the purpose of ownership or leasing. This also involves capital risk.
COMMERCIAL REAL ESTATE: Commercial real estate involves a real estate investment in properties for commercial purposes such as renting.
RESIDENTIAL REAL ESTATE: This is the most basic type of real estate investment, which involves buying houses as real estate properties.

What is Investment


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Last Updated on : 4th Oct 2016

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