What is Investment?

What is Investment?

What is Investment Definition? 

An investment is essentially an asset that is created with the intention of allowing money to grow. The wealth created can be used for a variety of objectives such as meeting shortages in income, saving up for retirement, or fulfilling certain specific obligations such as repayment of loans, payment of tuition fees, or purchase of other assets.

Understanding the investment definition is crucial as sometimes, it can be difficult to choose the right instruments to fulfill your financial goals. Knowing the investment meaning in your particular financial situation will allow you to make the right choices.

Investment may generate income for you in two ways. One, if you invest in a saleable asset, you may earn income by way of profit. Second, if Investment is made in a return generating plan, then you will earn an income via accumulation of gains. In this sense, ‘what is investment’ can be understood by saying that investments are all about putting your savings into assets or objects that become worth more than their initial worth or those that will help produce an income with time.

Financially speaking, an investment definition is an asset that is obtained with the intention of allowing it to appreciate in value over time. Generally, investments fall in any one of three basic categories, as explained below.


Types of Investments 

The question ‘what is investment’ is mostly followed by understanding your investment objectives and identifying where to invest. Keeping aside investments in real estate and assets like jewellery and all, when it comes to different instruments, another aspect of understanding ‘what is investment meaning’ is to know about different types of investments. The first refers to equity investments, and the second category includes debt instruments. If your investment objectives match, equity investments can offer greater returns and carry relatively higher risk. While debt instruments are less risky, but offer relatively low returns.

Further, what is investment meaning can also be understood from the perspective of how they are acquired.

Following are different types of investments in India:

1. Stocks

This includes shares of ownership of any company and helps you earn dividends in return.

2. Bonds 

Wondering what is investment meaning in terms of bonds? It means lending your money to an institution or government, for which you receive fixed interest at regular intervals and also the face value upon maturity.

3. Mutual Funds

In this, funds are collected from different investors and put in a company’s bonds or shares, which are managed by fund managers. On understanding what is investment meaning and your investment objectives, you may choose equity funds or debt funds, depending on your risk capacity.

4. ULIP

ULIPs or Unit Linked Insurance Plans are a type of investment that provides both investment and life insurance benefits. A portion of the money invested into ULIPs is allocated for investment, meaning in this plan a part of your premium is invested in different funds and helps you earn market linked returns. It also offers tax-saving benefits of up to Rs. 1.5 lakhs under Section 80C.

5. Public Provident Fund (PPF)

Understanding investment meaning of PPF is simple. It is a government offered saving scheme that invests your funds for a specific period and helps you earn returns on the same. It provides an 8% interest rate starting 1st October 2018

For your benefit, you may also find out what is investment for tax saving and invest in such plans. Also, as discussed earlier, when you ponder over what is investment meaning and similar questions, consider adding term plans and health insurance policies in your portfolio for securing your family.

After this, put your funds in instruments like ULIP, mutual funds, ELSS (Equity linked savings scheme) and other government plans.

When talking about equity investments, you may wonder what is equity share?

Here’s what you need to know to understand what is equity share:

Any corporation can use equity shares as a long-term financing source. These are non-redeemable shares that are issued to the general public. Shareholders have the right to vote, share profits, and claim a company's assets. Understanding what is equity share can help you make more informed decisions and create a diverse investment portfolio.


How Should You Invest?

Now that you know ‘what is investment definition,’ and how it can help you create wealth, the next thing is to understand how to invest. Here are a few vital points you must keep in mind before you decide to invest.

1. Analyze Your Financial Needs

Firstly, analyze your financial situation concerning risk tolerance, investment objectives and other factors like family size, number of earning members and life goals. You may even take help from a financial professional. It will help you clarify any doubts about ‘what is investment meaning for you?’ and identify the suitable options.

2. Investment Diversification

Build a diversified financial portfolio according to your investment objectives by putting your funds in different instruments for maintaining the right balance between risk and returns.

Also, when thinking about ‘what is investment meaning’ and ‘where to invest,’ consider giving priority to those instruments that offer security to your loved ones. It may include life insurance policies like term plan, ULIP (ULIP full form: Unit Linked Insurance Plan) and other such instruments. You may consider the objectives for investment to generate appropriate returns from it. 


3. Time Period

You should also know that it is difficult to answer what is investment meaning for a particular individual without considering the time period. That is why, while considering what is investment, know what time you have before turning your investments into cash. This is a crucial element that determines your investment objectives. Depending on your requirements, you may choose short-term or long-term funds.

4. Periodical Reassessment

Since funds are influenced by market forces, it is imperative that you closely monitor them periodically. You may also consider readjustment if your portfolio is not generating good returns.


What are the Objectives of Investment?

Before you decide to invest your earnings in any one of the many investment plans available in India, it’s essential to understand the reasons behind it and the investment meaning. While the individual objectives of investment may vary from one investor to another, the overall goals of investing money may be any one of the following reasons..

Reasons to Start Investing Today

1. To Keep Money Safe

Capital preservation is one of the primary objectives of investment for people. Some investments help keep hard-earned money safe from being eroded with time. By parking your funds in these instruments or schemes, you can ensure that you do not outlive your savings. Fixed deposits, government bonds, and even an ordinary savings account can help keep your money safe. Although the return on investment may be lower here, the objective of capital preservation is easily met. 

2. To Help Money Grow

Another one of the common objectives of investing money is to ensure that it grows into a sizable corpus over time. Capital appreciation is generally a long-term goal that helps people secure their financial future. To make the money you earn grow into wealth, you need to consider investment objectives and options that offer a significant return on the initial amount invested. Some of the best investments to achieve growth include real estate, mutual funds, commodities, and equity. The risk associated with these options may be high, but the return is also generally significant.

3. To Earn a Steady Stream of Income

Investments can also help you earn a steady source of secondary (or primary) income. Examples of such investments include fixed deposits that pay out regular interest or stocks of companies that pay investors dividends consistently. Income-generating investments can help you pay for your everyday expenses after you have retired. Alternatively, they can also act as excellent sources of supplementary income during your working years by providing you with additional money to meet outlays like college expenses or EMIs.

4. To Minimize the Burden of Tax

Aside from capital growth or preservation, investors also have other compelling objectives for investment. This motivation comes in the form of tax benefits offered by the Income Tax Act, 1961. Investing in options such as Unit Linked Insurance Plans (ULIPs), Public Provident Fund (PPF), and Equity Linked Savings Schemes (ELSS) can be deducted from your total income. This has the effect of reducing your taxable income, thereby bringing down your tax liability.

5. To Save up for Retirement

Saving up for retirement is a necessity. It is essential to have a retirement fund you can fall back on in your golden years, because you may not be able to continue working forever. By investing the money you earn during your working years in the right investment options, you can allow your funds to grow enough to sustain you after you’ve retired.

6. To Meet your Financial Goals

Investing can also help you achieve your short-term and long-term financial goals without too much stress or trouble. Some investment options, for instance, come with short lock-in periods and high liquidity. These investments are ideal instruments to park your funds in if you wish to save up for short-term targets like funding home improvements or creating an emergency fund. Other investment options that come with a longer lock-in period are perfect for saving up for long-term goals.