Concept of Investment – Investment is the employment of funds to get the return on it. In general terms, investment means the use of money in the hope of making more money. In finance, investment means the purchase of a financial product or another item of value with an expectation of favorable future returns. A study, PDF Reader with free Download PDF File. Also learn, Two Types: economic and financial investment, Difference between Saving and Investing, GST, What is the Concept of Investment?
Learn and Understand, What is the Concept of Investment?
What is Investment? An investment is an asset or item acquired to generate income or appreciation. In an economic sense, an investment is the purchase of goods that do not consume today but use in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will later sell at a higher price for a profit, mutual funds.
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Open in new tab Investment of hard-earned money is a crucial activity of every human being. Also, Investment is the commitment of funds that have been saved from current consumption with the hope that some benefits will be received in the future. Thus, it is a reward for waiting for money. Savings of the people invest in assets depending on their risk and return demands. Also Importance, Industrial Relations!
Investment refers to the concept of deferred consumption, which involves purchasing an asset, giving a loan, or keeping funds in a bank account to generate future returns. Various investment options are available, offering differing risk-reward tradeoffs. An understanding of the core concepts and a thorough analysis of the options can help an investor create a portfolio that maximizes returns while minimizing risk exposure.
There are two concepts of Investment:
Economic Investment:
The concept of economic investment means an addition to the capital stock of the society. Also, The capital stock of the society is the goods that use in the production of other goods. The term investment implies the formation of new and productive capital in the form of new construction; and, producers of durable instruments such as plants and machinery. Also, Inventories and human capital include in this concept. Thus, an investment, in economic terms, means an increase in building, equipment, and inventory.
Financial Investment:
This is an allocation of monetary resources to assets that expect to yield some gain or return over a given period of time. It means an exchange of financial claims such as shares and bonds, real estate, etc. Financial investment involves contracts written on pieces of paper such as shares and debentures. People invest their funds in shares, debentures, fixed deposits, national saving certificates, life insurance policies, provident fund, etc. in their view investment is a commitment of funds to derive future income in the form of interest, dividends, rent, premiums, pension benefits and the appreciation of the value of their principal capital. In primitive economies, most investments are of the real variety whereas in a modern economy much investment is of the financial variety.
The economic and financial concepts of investment are related to each other; because, investment is a part of the savings of individuals; which flow into the capital market either directly or through institutions. Thus, investment decisions and financial decisions interact with each other. Also, Financial decisions are primarily concerned with the sources of money whereas investment decisions are traditionally concerned with the uses or budgeting of money.
Wise investing requires knowledge of key financial concepts and an understanding of your personal investment profile and how these work together to impact investing decisions. Here we will understand the difference between saving and investing. Illustrate the risk/rate-of-return tradeoff, the importance of the time value of money and asset allocation; your personal risk tolerance, recognize your financial goals, and in defining an appropriate investment plan and asset mix for you and your family
The Difference Between Saving and Investing:
Even though the words “saving” and “investing” are often used interchangeably, there are differences between the two.
Saving provides funds for emergencies and for making specific purchases in the relatively near future (usually three years or less). Also, the Safety of the principal and liquidity of the funds (ease of converting to cash) are important aspects of savings Rupees. Because of these characteristics, savings Rupees generally yield a low rate of return and do not maintain purchasing power.
Investing, on the other hand, focuses on increasing net worth and achieving long-term financial goals. Investing involves risk (of loss of principal) and is to consider only after you have adequate savings.
| Savings v/s Investment Rupees | |
| Savings | Investment |
| Safe | Involve risk |
| Easily accessible | Volatile in short time periods |
| Low return | Offer potential appreciation |
| Used for short-term goals | For mid- & long-term goals |
