Meaning of Investment
Investment refers to a tool used by people for allocating their funds with the aim of generating revenue. It is the one through which profit is created out of ideal lying resources by deploying them into financial assets. Investment simply refers to the purchase of assets by people not meant for immediate consumption but for future use that is wealth creation.
These assets are purchase with the hope of earning income or benefitting from their appreciated value that increases over the time. Investment assets comprises of stocks, mutual funds, bonds, real estate, derivatives, jewelry, art work etc. Every investment object mainly serves three objectives that are safety, income and growth.
However, each investment tool varies in terms of degree of risk or benefits and investors chooses the one as per their suitability. It plays an efficient role in the overall development of the economy through utilizing the savings of peoples for development and productive means.
Characteristics of Investment
Risk is an inherent characteristic of every investment. Risk refers to loss of principal amount, delay or non-payment of capital or interest, variability of return etc. Every investment differs in terms of risk associated with them. However, less risky investments are the most preferred ones by investors.
Return refers to the income expected from investment done. It is the key objective for doing investment by investors. Investment provides benefits to peoples either in the form of regular yields or through capital appreciation.
It refers to the surety of return or protection of principal amount without any loss. Safety is an important feature of every investment tool that is analyzed before allocating any fund in it.
Income stability refers to the regularity of income without any fluctuations. Every investor wants to invest in such assets which provide return consistently.
Liquidity refers to how quickly an investment can be sold or converted into cash. It simply means easiness with which investment can be sold in the market without any loss. Most of the investors want to invest in liquid assets.
Features of Investment
Safety of Principal
Every investment is subject to fluctuations in its price which is caused due to changing market conditions. An investment tool is termed as adequate if it ensures the safety of the principal to investors. It should possess an ability of redemption as and when required as per the needs of the person. Proper evaluation of distinct economic and industry trends should be done before deciding the type of investments.
Capital appreciation is an important feature of every investment tool. Every investment is expected to rise in its value over a period of time which is a key determinant for making deploying funds in it. Investors should properly forecast which assets are expected to appreciate in the future and make timely purchases of them.
Expectation of Return
The investment provides returns from time to time to investors which varies as per the market conditions. It is the amount expected by people for deploying their funds for a particular period of time in a set of assets. It is the main objective of every investment and every investor expects a stable and regular return from their investment.
Marketability refers to the ease with which the investment securities can be purchased and sold or can be transferred in the market. This feature of investment tools determines their value as assets with better marketability are preferred more by the people looking for the investment.
Purchasing Power Stability
Every investor before making an investment considers the future purchasing power of their funds. In order to maintain the stability of purchasing power, he ensures that the money value of the investment should increase in accordance with rising in price levels to avoid any chance of losing money.
Tax implications on the income provided by investment programs are seriously taken into consideration by investors. The real return earned by people is one that is left after paying income tax. While deciding an investment option, the burden of taxes on its income is an important determinant analyzed by investors. He should choose such investment securities which put less tax burden and maximize its return.
Investment securities must be evaluated from legal aspects before selecting them. Only such securities which are approved by law should be chosen as illegal securities will land investor in trouble. The best way is to do investment in securities issued by LIC, UTI, and Post office national saving certificates which are legal and save investors from various troubles.
Importance of Investment
Investment serves as an efficient tool for providing periodic and regular income to people. Earning return in the form of interest and dividends is one of the important objectives of the investment process. Investors analyses and invest in those that provide a better rate of return at lower risk.
Creation of wealth is another important role played by an investment activity. It helps investors in wealth creation through appreciation of their capital over the time. Investment helps in accumulating large funds by selling assets at a much higher price than the initial purchase price.
It enables peoples in availing various tax benefits and saving their incomes. Under section 80C of income tax act, individuals can save up to a maximum limit of Rs. 1,50,000. Many peoples prefer to go for an investment for taking numerous tax exemptions.
Investment activities have an efficient role in the overall development of the economy. It helps in efficient mobilization of ideal lying resources of peoples into productive means. Investment serves as a mean for bringing together those who have sufficient funds and one who are in need of funds. It enables in capital creation and leads to economic development of the country.
Meet Financial Goals
Investment activities support peoples in attaining their long term financial goals. Individuals can easily grow their funds by investing their money in long term assets. It serves mainly the purpose of providing financial stability, growing wealth and keeping people on track at their retirement by providing them with large funds.