Financial and economic meaning of investment

Financial investment involves of funds in various assets, such as stock, Bond, Real Estate, Mortgages etc. Investment is the employment of funds with the aim of achieving additional income or growth in value. It involves the commitment of resources which have been saved or put away from current consumption in the hope some benefits will accrue in future. Investment involves long term commitment of funds and waiting for a reward in the future.

From the point of view people who invest their finds, they are the supplier of ‘Capital’ and in their view investment is a commitment of a person’s funds to derive future income in the form of interest, dividend, rent, premiums, pension benefits or the appreciation of the value of their principle capital. To the financial investor it is not important whether money is invested for a productive use or for the purchase of secondhand instruments such as existing shares and stocks listed on the stock exchange. Most investments are considered to be transfers of financial assets from one person to another.

Economic investment means the net additions to the capital stock of the society which consists of goods and services that are used in the production of other goods and services. Addition to the capital stock means an increase in building, plants, equipment and inventories over the amount of goods and services that existed.

The financial and economic meanings 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 secondhand capital financing. Investors as ‘suppliers’ and investors as ‘users’ of long-term funds find a meeting place in the market.

So from above we know the term investment. The savers become the investors in the following term and invest in unique assets:

Other definitions for investment:

“Investment may be defined as the purchase by an individual or institutional investor of a financial or real asset that produces a return proportional to the risk assumed over some future investment period.” – F. Amling

“Investment defined as commitment of funds made in the expectation of some positive rate of return. If the investment is properly undertaken, the return will commensurate with the risk the investor assumes.”- Fisher & Jordan

Investment refers to acquisition of some assets. It also means the conversion of money into claims on money and use of funds for productive income earnings assets. In essence, it means the use of funds for productive purpose, for securing some objectives like, income, appreciation of capital or capital gains, or for further production of goods and services with the objective of securing yield

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