Investment

INVESTMENT 

Investment is the employment of funds on assets with the aim of earning income or capital appreciation. Investment  has  two attributes namely time and risk.

Present consumption is sacrificed to get a return in the future . The sacrifice that has to be borne is certain but the return in the future may be uncertain. The attribute of investment indicates the risk factor. The risk is undertaken with a view to reap some return from the investment. For a layman, investment means some monetary commitment. A person’s commitment to buy a flat or a house for his personal use may be an investment from his point of view. The cannot be considered as an actual investment as it involves sacrifice but does not yield any financial return.

To the economist, investment in the net addition made to the nation’s capital stoke that consists of goods and services that are used in the production process. A net addition  to the capital stoke means an increase in the buildings, equipment or inventories. These capital stoke are used to produce  other goods and services.

Financial investment is the allocation of money to assets that are expected to yield some gain over a period of  time. it is an exchange of financial claims such as stoke and bonds for money. They are expected to yield returns  and experience capital growth over the years.

The financial and economic meanings are related to each other because the savings of the individual flow into the capital market as financial investments, to be use in economic investment. Even though they are related to each other, we are concerned only about the financial investment made on securities.