Investment does not refer to mere buying and selling the shares of a company. But it means more than that of selling and buying the shares of a company.The real investor buys and sells his shares with a precise and ample knowledge and vision. When we talk about investments, we refer to the gathering of some kind of asset in hopes of receiving future revenue from it. The term is closely related to the finance and economics areas. Economically, an investment is the buy of capital goods that will not be consumed at the moment but, instead, used in the future to produce wealth. The main importance of investments is always to increase your richness. It involves that you have to make decisions, and those decisions entail a risk. For that reason, many individuals and companies are usually advised by experts on the matter.
The word “investment” can be defined in many ways according to different theories and principles. It is a term that can be used in a number of contexts. However, the different meanings of “investment” are more alike than dissimilar.Generally, investment is the application of money for earning more money.
According to economics, investment is the implementation of resources in order to increase income or production output.
According to business theories, investment is that activity in which a manufacturer buys a physical asset, for example, stock or production equipment, in expectation that this will help the business to prosper in the long run.
Need of investment
The investment strategy is a plan, which is created to guide an investor to choose the most appropriate investment portfolio that will help him achieve his financial goals within a particular period of time.
An investment strategy usually involves a set of methods, rules, and regulations, and is designed according to the exchange or compromise of the investor’s risks and returns.
Investment strategies can be broadly categorized into the following types:
- Active strategies: One of the principal active strategies is market timing (an investor is able to move into the market when it is on the low and sell the stocks when the market is on the high), which is applied for maximizing yields.
- Passive strategies: Frequently implemented for reducing transaction costs.One of the most popular strategies is the buy and hold, which is basically a long term investment plan.It is common practice for the particular intermediaries to have separate legal procedures of their own.
Following are some intermediaries:
- Mutual Funds
- Pension Funds
- Insurance Companies
- Collective Investment Schemes
- Investment Clubs
Contracts can be registered (held inside an RRSP) or non-registered (not held inside an RRSP). Registered investments qualify for annual tax-sheltered RRSP contributions. Non-registered investments are subject to tax payments on the capital gains each year and capital losses can also be claimed.
Investment is simply defined as application of money for earning money. The term Investment is intently associated with financial and economical areas. In economics, investment refers to the implementation of resources in order to increase income or production output. In financial area, investment refers to the undertaking in which investor buys assets in order to uplift the business. Basically, the main goal of investments is always to increase richness. In this diverse world, there exists variety in investment.
There are different ways in which money can be invested –
- Stock Investment- It is the type of investment which permits the stock dealers or stockholders to trade in retreats. The system of stock investment does not omit prices and the process involves a sizeable amount of risk and indecision. It is not a quick method of making money.
- Share Market Investment-It involves investment in a stockmarket which is a public essence for the transaction of company stockand derivatives at an agreed price. Investing in the share market encloses a call option, which includes the right to buy a share, or the right to sell a share.
- Retirement Investment (RRSP) -Retirement investment guarantees financial security in the post retirement period. It is a wise and prudent way of investing money for secure future. These are very cost effective and require educated consultants.
- Mutual Funds – Mutual fund is a reasonable way forinvestorsto gain admittance to an investment that otherwise will be available only to a large institution. In this funds are blend in by the local individuals into a collective settlement. A third party is involved who manages the funds and rescues the assets.
- Segregated funds- “Segregation” refers to separating from the main body and collecting at a place. These funds act as intermediary between a mutual fund and a life insurance policy. These are the funds that come up with built in guarantee and the investment companies add protection into invested products.
- Tax Free Savings Account(TFSA)- It is a formative way of investment which help in meeting the lifetime needs whether they are short- term like going on a vacation or long-term like savings for the education.
- Guaranteed Investment Certificates (GIC) – This kind of investment offers 100% guarantee to preserve the principal and the interest payments. It is a flexible investment which is available for 1 to 5 year terms and is manageable to wide range of purchasers. Due to its low risk profile, the return is generally less than other investments.
Investment is a crucial need for today’s life style which moves on money. It is not wise enough to work for a single job all life and then retire on pension. Life demands to be active and dynamic. So it is very necessary to plan out something which protects our future. Although there is a considerable amount of risk involved in it yet it is a promising way to maximize earning potential. It involves various type