Definition: Money spent on acquiring a commodity which has the potential of making future income or wealth is known as investment. In simple terms, investment is engaging money today to maximise it in the future. An investor can be anyone, an individual, a business entity or even the government.

Two Key Aspects of Investment

The return on any investment is merely based on two aspects:

  • Time: The period for which the investment is made must be at least one year. More extended the term period of investment is, higher will be the return yield. Investments like government bonds depend on this factor.
  • Risk: Every investment bears some risk. Higher the potential of the investor to take a chance, better will be the return he gets. Stock market investments are majorly influenced by this factor.

Key Words

Investor: An investor can be any individual, firm or organisation who has the potential of engaging one’s capital for a long-term period (usually more than a year) to earn profit or wealth in future.

Speculator: Speculators usually invest the borrowed sum in the high-risk bearing opportunities for a short-term period (not exceeding six months) to earn high returns. They rely on calculations based on market trend, psychology and technical analysis.

Trader: Traders are the ones who deal in the derivatives market or the stock market, buying and selling their holdings within a day or a week or a month. They aim to earn a profit in the form of margins derived from price fluctuation.

Gambler: Gambler is the person who put in money or valuables without any basis or calculations in a game of luck or chance. He/she invests in betting, playing cards, tosses, etc., knowing that the outcome is uncertain.

Types of Investments

Ownership Investments

The investment made to acquire the possession of any tangible or intangible asset is known as ownership investment. Some of the types of ownership investments are:

  • Fixed Assets: It includes the acquisition of fixed assets (machinery, land, building, etc.) to generate some value in the future.
  • Stocks: Holding shares of a public company provides the right to stake the future profits of the company.
  • Valuables like antiques and collectables: Investment on some antique objects or collectables with the idea of selling them in future can be profitable.
  • Business Capital: It is investing in one’s own business to earn a profit by selling goods or services.
  • License and Trademark: A license or trademark gives recognition to the company by giving it a brand name which brings in more business to the company.

Lending Investments

Lending investments can be understood as buying of repayable debts to earn interest in future.