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What is Investment?

Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in the form of interest, income, or appreciation of the value of the instrument. Investment is related to saving or deferring consumption.

Meaning of Investment:
An investment involves the choice by an individual or an organization such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time.

When an asset is bought or a given amount of money is invested in the bank, there is anticipation that some return will be received from the investment in the future.

Definition of Investment from different Perspectives:
Investment is a term frequently used in the fields of economics, business management and finance. It can mean savings alone, or savings made through delayed consumption. Investment can be divided into different types according to various theories and principles.
While dealing with the various options of investment, the defining terms of investment need to be kept in mind.
  • Investment 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 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 in terms of Business Management:
    According to business management theories, investment refers to tangible assets like machinery and equipments 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 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 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 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.

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Last Updated on : 5th July 2013

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