WHAT IS INVESTMENT:-

Investment is the employment of funds on assets with the aim of earning income or
capital appreciation. Investment means putting your money to work to earn more
money or simply speaking it is sacrificing of money today for future return.

Investment! One of the most successful ways to make financial provisions for the
future, where most of the conditions are uncertain and unpredictable. With well
planned investment one can get the satification of safety and surety in life. We are
familiar with investment from very early days of civilization. Initially the term
saving was more popular, and was considered as safest way of making stable.
Investment may be said of keeping a sum of money aside from the present savings
with the views of earning returns on it. It is done on the cost of sacrifice of present
consumption of the part of money.

The dictionary meaning of investment is to commit money in order to earn financial

return or to make use of the money for future benefits or advantages. People commit
money to invest with an expectation to increase their future wealth by investing
money to spend in future years. All investment have some risk, whether in stock,
capital market, banking, financial sector, real estate, bullion, gold etc The degree of
risk however varies on the basic of the features of the assets, investment, timeframe
or the insure of the security etc.

Investment benefits both economy and the society. It is an outgrowth of economic

development and the maturation of modern capitalism. for the economy as a whole,
aggregate investment sanctioned in the current period is a major factor in
determining aggregate demand and, hence, the level of employment.

Elements of investment
 Reward

 Risk and return

 Time

WHY SHOULD WE INVESTMENT?

 Financial reasons
1. To generate on your idle resources
2. To earn returns
 3. To protect and increase capital
4. To have money for important events
5. Make a provision for future uncertainties.

 Others reasons
1. Tax savings
2. Income
3. Ease of withdrawal

Investment is not a game but a serious subject that can have a major impact on investor’s future wellbeing.
Virtually everyone makes investment. Even if the individual does not select specific assets such as stock,
investment are still made through participation in pension plan, and employee saving programmer or through
purchase of life insurance or a home or by some other mode of investment like investing in real estate or in banks
or in saving schemes of post offices/ each of this investment has common characteristics such as potential return
and the risk you must bear.

INVESTMENT TYPES
The most common terms that are related to different types of investments:-
1. Bond: A debt instrument, a bond is essentially a loan that you are giving to the government or an institution in
exchange for a pre-set interest rate paid regularly for a specified term. The bond pays interest (a coupon payment)
while it's active and expires on a specific date, at which point the total face value of the bond is paid to the investor.
If you buy the bond when it is first issued, the face or par value you receive when the bond matures will be the
amount of money you paid for it when you made the purchase. In this case, the return you receive from the bond is
the coupon, or interest payment. If you purchase or sell a bond between the time it is issued and the time it matures,
you may experience losses or gains on the price of the bond itself.

2. Stock: A type of investment that gives you partial ownership of a publicly traded company.

3. Mutual fund: An investment vehicle that allows you to invest your money in a professionally managed
portfolio of assets that, depending on the specific fund, could contain a variety of stocks bonds, market- related
indexes, and other investment opportunities. Money market account: A type of savings account that offers a
competitive rate of interest (real rate) in exchange for larger-than-normal deposits.
4. Exchange-Traded Fund (ETF): ETFs are funds – sometimes referred to as baskets or portfolios of securities
– that trade like stocks on an exchange. When you purchase an ETF, you are purchasing shares of the overall fund
rather than actual shares of the individual underlying investments. Investment strategies once you have a better
understanding of the investment choices available, you may come across specialized terms that explain how
money can be invested: Allocation of investments: Also known as asset allocation, this term refers to the types of
investments/asset categories you own and the percentage of each you have in your investment portfolio.

5. Money market account: A type of savings account that offers a competitive rate of interest (real rate)
in exchange for larger-than-normal deposits.

Investment strategies
Once you have a better understanding of the investment choices available, you may come across
specialized terms that explain how money can be invested:

1. Allocation of investments: Also known as asset allocation, this term refers to the
investments/asset categories you own and the percentage of each you have in your investment
portfolio.

2. Diversification: This is a risk management technique that mixes a wide variety of investments
to potentially minimize your investment risk.

3. Dollar cost averaging: An investment strategy used whereby an investor purchases fixed
investment amounts at predetermined times, regardless of the price of the investment. This
strategy minimizes risk because it reduces the difference between the initial investment and the
current market value over a long enough timeline.

Investment terminology
Once you start investing, there are a variety of terms that describe your gains, losses, and
individual investments.
1. Capital asset: A long-term asset such as land or a building that is not purchased or sold in the
normal course of business. In other words, anything you own and use for personal or investment
purposes. Examples include your home, your car, and stocks or bonds held in a personal account.

2. Capital gain/loss: Profit or loss from the sale of an asset.

3. Capital appreciation/depreciation: The amount by which the value of an asset increases or
decreases compared to the amount you paid for it. You receive the capital gain or loss when you
sell the asset.

4. Dividends: A distribution of a portion of a company’s earnings, decided by the board of

directors, to a class of its shareholders.

5. Index: A portfolio of securities representing a particular market or industry or a portion of it.

Indices often serve as benchmarks for measuring investment performance– for example, the Dow
Jones Industrial Average or the S&P 500 Index. Although investors cannot directly purchase an
index, they are able to invest in mutual funds and exchange-traded funds that are based on the
indexes. These types of vehicles enable investors to invest in securities representing broad
market segments and/or the total market.

6. Margin account: An account that allows you to borrow money from your brokerage account
in order to purchase securities. The loan is collateralized by the existing securities and cash held
in the account.

7. Prospectus: A document filed with the SEC that describes an offering of securities for sale to
the public. The prospectus fully discloses the risks, policies, and fees of the offering.

8. Yield: The income return on an investment. This refers to the interest or dividend received
from a security based on the investments cost or face value. By taking the time to learn about the
common types of investments and the language that accompanies them, you can become a smarter
and savvier investor
Investment – parking of funds (current) to earn benefits or securing growth in future can be
termed as Investments. It is a sacrifice from current income to gain returns at a later stage/date.
Investment should be done to yield more return than rate of inflation. The current income of an
individual can be put aside for two things – either consumption or savings. The money once
consumed is gone forever, whereas the savings bears fruit. Major element of any investment is
time and risk. It purely depends upon individual capacity to give importance to either of the two
elements, on the basis of one’s need. There are plenty of areas where money can be invested
like- government bonds, equities, gold, real estate, stocks, fixed deposits, etc. A proper planning
and analysis should be done in order to reach to aperfect decision of investment/ or portfolio
management. One’s skill improves with the timely investments.

Investment involves making of a sacrifice in the present with the hope of deriving future
benefits. Two most important features of an investment are current sacrifice and future benefit.
Investment is the sacrifice of certain present values for the uncertain future reward. It involves
numerous decision such as type, mix, amount, timing, grade etc, of investment the decision
making has to be continues as well as investment may be defined as an activity that commits
funds in any financial/physical form in the present with an expectation of receiving additional
return in the future. The expectation brings with it a probability that the quantum of return may
vary from a minimum to a maximum.
This possibility of variation in the actual return is known as investment risk. Thus every
investment involves a return and risk. Investment has many meaning and facets. However,
investment can be interpreted broadly from three
- Angles
- Economic
- Layman
- Financial.
Economic investment includes the commitment of the fund for net addition to the capital stock of
the economy. The net additions to the capital stock means an increase in building equipments or
inventories over the amount of equivalent goods that existed, say, one year ago at the same time.
The layman uses of the term investment as any commitment of funds for a future benefit not
necessarily in terms of return. For example a commitment of money to buy a new car is certainly
an investment from an individual point of view. Financial investment is the commitment of funds
for a future return, thus investment may be understood as an activity that commits funds in any
financial or physical form in the presence of an expectation of receiving additional return in
future. In the present context of portfolio management, the investment is considered to be
financial investment, which imply employment of funds with the objective of realizing additional
income or growth in value of investment at a future date. Investing encompasses very
conservative position as well as speculation the field of investment involves the study of
investment process. Investment is concerned with the management of an investors’ wealthwhich
is the sum of current income and the present value of all future incomes. In this text investment
refers to financial assets. Financial investments are commitments of funds to derive income in
form of interest, dividend premium, pension benefits or appreciation in the value of initial
investment. Hence the purchase of shares, debentures post office savings certificates and
insurance policies all are financial investments. Such investment generates financial assets.
These activities are undertaken by any one who desires a return, and is willing to accept the risk
from the financial instruments.

Characteristics of Investment
The characteristics of investment can be understood in terms of as
- Return,
- Risk,
- Safety,
- Liquidity etc.

Return: All investments are characterized by the expectation of a return. In fact, investments
are made with the primary objective of deriving return. The expectation of a return may be from
income (yield) as well as through capital appreciation. Capital appreciation is the difference
between the sale price and the purchase price. The expectation of return from an investment
depends upon the nature of investment, maturity period, market demand and so on.

Risk: Risk is inherent in any investment. Risk may relate to loss of capital, delay in repayment
of capital, nonpayment of return or variability of returns. The risk of an investment is determined
by the investments, maturity period, repayment capacity, nature of return commitment and so on.
Risk and expected return of an investment are related. Theoretically, the higher the risk, higher is
the expected returned. The higher return is a compensation expected by investors for their
willingness to bear the higher risk.
Safety: The safety of investment is identified with the certainty of return of capital without loss
of time or money. Safety is another feature that an investor desires from investments. Every
investor expects to get back the initial capital on maturity without loss and without delay.

Liquidity: An investment that is easily saleable without loss of money or time is said to be
liquid. A well developed secondary market for security increase the liquidity of the investment.
An investor tends to prefer maximization of expected return, minimization of risk, safety of
funds and liquidity of
investment.

Investment categories:
Investment generally involves commitment of funds in two types of assets:
-Real assets
- Financial assets

Real assets: Real assets are tangible material things like building, automobiles, land, gold etc.

Financial assets: Financial assets are piece of paper representing an indirect claim to real
assets held by someone else. These pieces of paper represent debt or equity commitment in the
form of IOUs or stock certificates. Investments in financial assets consist of –
- Securities (i.e. security forms of) investment
- Non-securities investment
The term ‘securities’ used in the broadest sense, consists of those papers which are quoted and
are transferable. Under section 2 (h) of the Securities Contract (Regulation) Act, 1956 (SCRA)
‘securities’ include:

i) Shares., scrip’s, stocks, bonds, debentures, debenture stock or other marketable securities of a
like nature in or of any incorporated company or other body corporate.

ii) Government securities.

iii) Such other instruments as may be declared by the central Government as securities, and
inclide

iv) Rights of interests in securities. Therefore, in the above context, security forms of
investments Equity shares, preference shares, debentures, government bonds, Units of UTI and
other Mutual Funds, and equity shares and bonds of Public Sector Undertakings (PSUs). Non-
security forms of investments include all those investments, which are not quoted in any stock
market and are not freely marketable. viz., bank deposits, corporate deposits, post office
deposits, National Savings and other small savings certificates and schemes, provident funds,
and insurance policies. Another popular investment in physical assets such as Gold, Silver,
Diamonds, Real estate, Antiques etc. Indian investors have always considered the physical assets
to be very attractive investments. There
are a large number of investment avenues for savers in India. Some of them are marketable and
liquid, while others are non marketable, Some of them are highly risky while some others are
almost risk less. The investor has to choose proper avenues from among them, depending on his
specific need, risk preference, and return expectation. Investment avenues can be broadly
categorized under the following heads: -
1. Corporate securities
. Equity shares .Preference shares
. Debentures/Bonds . GDRs /ADRs
. Warrants . Derivatives

2. Deposits in banks and non banking companies

3. Post office deposits and certificates

4. Life insurance policies

5. Provident fund schemes

6. Government and semi government securities

7. Mutual fund schemes

8. Real assets