Meaning of investment
Investment refers to the instrument that people use to allocate their funds for the purpose of generating income.
It is the way in which profits are created by deploying ideal false resources into financial assets.
Investment means the purchase of assets by people not only for immediate consumption but also for future consumption i.e. wealth creation.
These assets are purchased with the hope of generating income or benefiting from their appreciation in value that increases over time.
Investment assets include stocks, mutual funds, bonds, real estate, derivatives, jewelry, art, etc.
Every investment object mainly fulfills the three objectives of safety, income and growth.
However, each investment instrument differs in the degree of risk or reward and investors choose one according to their suitability.
It plays an efficient role in the overall development of the economy by utilizing the savings of the people for development and productive means.
Features of the investment
Risk is an inherent feature of every investment. Risks include loss of principal, late or non-payment of principal or interest, variability of returns, etc.
Every investment is different with respect to the risks associated with them. However, low risk investments are most preferred by investors.
Return is the expected income from the investment made. The main objective is for investors to invest.
Investments provide benefits to people either in the form of regular income or through capital appreciation.
It refers to assurance of return without loss or protection of principal amount.
Safety is an important feature of every investment instrument which is analyzed before allocating any funds in it.
Stability of income
Income stability refers to regularity of income without any fluctuations.
Every investor wants to invest in assets that give consistent returns.
Liquidity is how quickly an investment can be sold or converted into cash.
It simply means the ease with which an investment can be sold in the market without any loss. Most investors prefer to invest in liquid assets.
Features of the investment
Every investment is subject to price fluctuations that result from changing market conditions.
An investment instrument is said to be adequate if it ensures security of principal to the investors.
He must have the ability to redeem according to the needs and requirements of the individual.
Specific economic and industry trends should be properly evaluated before deciding on the type of investment.
Capital appreciation is an important feature of every investment vehicle.
Every investment is expected to appreciate in value over a period of time which is a major determinant of investing in it.
Investors should correctly predict which assets are expected to appreciate in the future and buy them at the right time.
Expect a return
Investments provide returns to the investor over time which vary according to market conditions.
A set of assets is the amount people are expected to deploy their funds for a specific period of time.
This is the main objective of every investment and every investor expects to get steady and regular returns from their investments.
Marketability refers to the ease with which investment securities can be bought and sold or transferred in the market.
This characteristic of investment instruments determines their value as assets with better marketability are preferred by people looking for investment.
Purchasing power stability
Every investor considers the future purchasing power of their fund before investing.
In order to maintain the stability of purchasing power, he ensures that the money value of the investment should increase in line with the price level to avoid any possibility of losing money.
The tax implications of income provided by investment programs are a serious consideration for investors. The real return to people is what is left over after income tax is paid. While choosing an investment option, the tax burden on its income is an important determinant analyzed by investors. He should choose investment securities which will minimize tax burden and maximize returns.
Before choosing investment securities, it is necessary to evaluate them from legal aspects.
Only such bonds should be chosen which are approved by law as illegal bonds will put investors in trouble.
The best way is to invest in securities issued by LIC, UTI and Post Office which are legal and save investors from various hassles.
Importance of investment
Income is earned
Investments serve as an efficient tool to provide periodic and regular income to people.
Earning returns in the form of interest and dividends is an important objective of the investment process.
Investors invest by analyzing the best returns at low risk.
Another important role played by investment activities is wealth creation.
It helps investors in wealth creation by appreciating their capital over time.
Investing helps to accumulate large funds by selling assets at a higher price than the initial purchase price.
It enables people to avail various tax benefits and save their income.
Under Section 80C of the Income Tax Act, individuals can save up to a maximum of Rs. 1,50,000. Many people prefer to go for investments to get many tax benefits.
Investment activities play an effective role in the overall development of the economy.
It helps to efficiently integrate people’s ideal false resources into productive tools.
Investment is a tool to bring together those who have sufficient funds and those who need funds.
It enables capital formation and economic development of the country.
Meet financial goals
Investment activities help people achieve their long-term financial goals.
Individuals can easily grow their funds by investing their money in long-term assets.
It primarily serves the purpose of providing financial stability, increasing wealth and providing a large fund to people during their retirement.
Before deciding to invest your earnings in any one of the many investment schemes available in India, it is important to understand the reasons behind it and the meaning of investment.
Individual investment objectives may vary from investor to investor, but overall investment objectives may be any one of the following.
Reasons to start investing today
To keep money safe
Preservation of capital is one of the primary objectives of people investing.
Some investments help protect hard-earned money from dwindling over time.
By parking your funds in these instruments or schemes, you can ensure that you don’t spend more than your savings.
Fixed deposits, government bonds and even ordinary savings accounts can help keep your money safe.
Although the return on investment here is low, the objective of capital preservation is easily achieved.
To help grow money
Another common goal of investing money is to ensure that it grows significantly over time.
Capital appreciation is usually a long-term goal that helps people secure their financial future.
To grow the money you earn into wealth, you need to consider investment goals and options that offer significant returns on the initial amount invested.
Some of the best investments to achieve growth include real estate, mutual funds, commodities and equities.
The risk associated with these options can be high, but the returns are also usually significant.
To get a steady stream of income
Investments can help you earn a steady source of secondary (or primary) income.
Examples of such investments include fixed deposits that pay regular interest or stocks of companies that consistently pay dividends to investors.
Investments that generate income can help you pay for your day-to-day expenses after you retire.
Alternatively, they can serve as an excellent source of supplementary income during your working years, giving you extra money to meet outlays like college expenses or EMIs.
To reduce the tax burden
Apart from capital growth or preservation, investors also have other attractive investment objectives.
This motivation comes in the form of tax benefits offered by the Income Tax Act, 1961.
Investing in options like Unit Linked Insurance Plans (ULIPs), Public Provident Fund (PPF) and Equity Linked Savings Schemes (ELSS) can be deducted from this.
Your gross income. This has the effect of reducing your taxable income, thereby reducing your tax liability.
Saving for retirement
Saving for retirement is essential.
Having a retirement fund that you can fall back on in your golden years is a must, because you won’t be able to keep working forever.
By investing the money you earn during your working years in the right investment options, your funds can grow enough to sustain you after you retire.
To meet your financial goals
Investing allows you to achieve your short-term and long-term financial goals without much stress or hassle.
Some investment options, for example, come with shorter lock-in periods and higher liquidity.
These investments are ideal vehicles to keep your funds if you want to save for short-term goals like funding home improvements or building an emergency fund.
Other investment options that come with longer lock-in periods are suitable for saving for long-term goals.