What is Investment? Nature and Objectives

Meaning and Definition of Investment

Investment means the purchase of a financial product or other item of value with an expectation of favorable future returns. In general terms, it means the use of money with the hope of making more money.

According to Oxford Dictionary___ ” It means the investing of money”.

According to Keynes defined as___ The addition to the value of the capital equipment which has resulted from the productive activity of the period”.Investment

Nature of Investment

1. Rate of return: Return refers to expected rate of return from an investment. It is the major factor which influences the pattern of investment that is made by the investor.

2. Risk involves: Risk of an investment refers to the variability of its rate of return. The greater the variability or dispersion of the possible outcomes or the boarder the range of possible outcomes, the greater is the risk.

3. Marketability: It is highly marketable or liquid if :

  1. It can be transacted quickly.
  2. The transaction cost is low.
  3. The price change between two successive transactions is negligible.

4. Capital growth: It refers Capital growth has today become an important character of investment. It is recognizing in connection between corporation and industry growth and very large capital growth. Investors and their advisers are constantly seeking ‘growth stock’ in the right industry and bought at the right time.

Objectives of Investment

1. Maximize current income: This objective emphasizes on current yield over other factor. It is typical to people who must rely on investment income for part of their entire livelihood.

2. Preservation of capital: It is a common objective. In its purest from, it means that the dollar value of the portfolio should not fall. This is a rather rigorous from of this objective.

3. Long-term capital growth: This objective aims primarily at capital gains over a relatively long period of time. It may be typical of investors who do not need current investment income to meet their living expenses. It implies a greater degree of risk in the portfolio.

4. Tax-advantaged investments: A person’s top marginal income tax bracket may make tax-free or tax-sheltered investment attractive.

5. Reasonable Current income with moderate capital growth: This modifies the first objective in that current investment income is not the only aim. While current income is important, capital gains also are sought.