This document discusses the meaning and types of investment. It defines investment as committing funds with the goal of future income or growth. Investments can range from safe to risky and involve waiting for a reward. The document differentiates financial investments from economic investments as viewed by economists. It also discusses factors that have increased the importance of investment decisions such as longer lifespans, taxation, interest rates, inflation, and higher incomes.

1. Essay on the Meaning of
Investment
Investment is the employment of funds with the aim of achieving additional income or
growth in value. The essential quality of an investment is that, it involves ‘waiting’ for a
reward.It involves the commitment of resources which have been saved or put away from
current consumption in the hope that some benefits will accrue in future. The term
‘Investment’ does not appear to be as simple as it has been defined.
Investmenthasbeencategorizedbyfinancial expertsandeconomists.Ithasalso often been
confusedwiththe termspeculation.The followingdiscussionwillgive an explanation of the
various ways in which investment is related or differentiated from the financial and
economicsense andhowspeculationdiffersfrominvestment.Itmustbe clearly established
that investment involves long-term commitment.
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Financial and Economic Meaning of Investment:
Investmentisthe allocationof monetaryresourcestoassetsthatare expectedtoyieldsome
gainor positive returnoveragivenperiodof time.These assetsrange fromsafe investments
to risky investments. Investments in this form are also called ‘Financial Investments.’
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From the pointof viewof people who invest their funds, they are the suppliers of ‘Capital’
and intheirview,investmentisacommitmentof a person’sfundstoderive future income in
the form of interest,dividends,rent,premiums,pensionbenefits or the appreciation of the
value of their principal capital.

2. To the financial investor,itisnotimportantwhethermoneyisinvested for a productive use
or for the purchase of secondhand instruments such as existing shares and stocks listed on
the stock exchanges. Most investments are considered to be transfers of financial assets
from one person to another.
The nature of investmentinthe financial sense differsfromitsuse inthe economicsense.To
the economist,‘Investment’ means the net additions to the economy’s capital stock which
consists of goods and service that are used in the production of other goods and services.
The term investmentimpliesthe formationof new andproductive capital inthe formof new
construction,newproducers’durableequipment such as plant and equipment. Inventories
and human capital are included in the economist’s definition of investment.
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The financial and economic meaning 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, divided in ‘new’ and second hand capital financing.
Investorsas‘suppliers’andinvestoras‘users’of long-termfundsfindameeting place in the
market.Inthis book,however,investmentwill be usedinits‘financialsense’andinvestment
will include those instruments and institutional media into which savings are placed.
Essay on the Importance of Investment:
Investments are both important and useful in the context of present-day conditions.
Some factors that have made investment decisions increasingly important are:
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3. Longerlife expectancyorplanningforretirement,increasing rates of taxation, high interest
rates, high rate of inflation, larger incomes and availability of a complex number of
investment outlets.
a.Longer Life Expectancy:
Investment decisions have become significant as people retire between the age of 60 and
65. Also,the trendshowslongerlife expectancy. The earnings from employment should be
calculatedinsucha mannerthata portionis put away as savings. Savings by themselves do
not increase wealth;these mustbe investedinsuchaway that the principal andincome will
be adequate for a greater number of retirement years.
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The importance of investment decisions is enhanced by the fact that there is an increasing
number of women are working in organizations.
Men and womenwill be responsibleforplanningtheirowninvestmentsduringtheirworking
life so that after retirement they are able to have a stable income. Increase in the working
population,properplanningforlifespanandlongevity have ensured the need for balanced
investments.
b.Taxation:
Taxationisone of crucial factorsin any countrywhichintroduces an element of compulsion
ina person’ssavings.There are variousformsof savingsoutletsinourcountryin the form of
investmentswhichhelpinbringingdownthe tax level.Theseare discussedunderavailability
of investment media.
c.Interest Rates:
The level of interestratesisanotheraspectwhichisnecessary for a sound investment plan.
Interestratesvarybetweenone investmentandanother.These mayvarybetweenrisky and
safe investments; they may also differ due to different benefit schemes offered by the
investments.

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These aspectsmustbe consideredbeforeallocatinganyamount in investments. A high rate
of interestmaynotbe the onlyfactor favouring the outlet for investment. The investor has
to include in his portfolio several kinds of investments.
He/she must maintain a portfolio with high risk and high return as well as low risk and low
return. Stability of interest is as important as receiving a high rate of interest. This book is
concernedwith determiningthatthe investorisgettinganacceptable returncommensurate
with the risks that are taken.
d.Inflation:
Every developing economy is phased with the problem of rising prices and inflationary
trends.InIndia,inflation has become a continuous problem since the last decade. In these
years of rising prices, several problems are associated coupled with a falling standard of
living. Before funds are invested, erosion of the resources will have to be carefully
considered in order to make the right choice of investments.
The investorwill tryandsearchan outletwhichwill give himahighrate of returninthe form
of interest to cover any decrease due to inflation. He will also have to judge whether the
interest or return will be continuous or there is a likelihood or irregularly.
Coupled with high rates of interest, he/she will have to find an outlet which will ensure
safety of principal. Besides high rate of interest and safety of principal, an investor has to
alwaysbearinmindthe taxationangle.The interest earned through investment should not
unduly increase his taxation burden. Otherwise, the benefit derived from interest will be
reduced by an increase in taxation.
e.Income:
Investment decisions have assumed importance due the general increase in employment
opportunitiesinIndia.The stagesof development in the country have accelerated demand
and a number of new organizations and services have increased.
Jobsare available innewsectorslike software technology; business processing offices, call
centers, exports, media, tourism, hospitality, manufacturing sector, banks, insurance and
financial services. The employment opportunities gave rise to increasing incomes.
More incomes have increased a demand for investments in order to bring in more income
above theirregularincome.The differentavenuesof investmentscanbe selectedtosupport

5. the regular income. Awareness of financial assets and real assets has led to the ability and
willingness of working people to save and invest their funds for return in their lean period
leading to the importance of investments.
Thus, the objectives of investment are to achieve a good rate of return in the future,
reducing risk to get a good return, liquidity in time of emergencies, safety of funds by
selecting the right avenues of investments and a hedge against inflation.
Essay on the Factors Favourable for Investment:
The investment market should have a favourable environment to be able to function
effectively.Businessactivitiesare markedbysocial,economicandpolitical considerations. It
is important that the economic and political factors are favourable.
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Generally, there