Characteristics and Importance of Investment

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 Factor

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

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.

Safety

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

Income stability refers to the regularity of income without any fluctuations. Every investor wants to invest in such assets which provide return consistently. 

Liquidity

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.

Characteristics and Importance of Investment
Characteristics and Importance of Investment

Importance of Investment

Generates Income

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.   

Wealth Creation

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. 

Tax Benefits

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.

Economic Development

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.