Introduction of Investment
In the ever-changing and progressive generation, investment has become the most important financial aspect, defining the financial status of a person. Investing helps to save money for the future, making it easier for an individual to cope with an unfortunate or difficult situation.
Investments generally generates income in two ways:
1. Investing in saleable assets allows investors to earn income in the mode of profit.
2.Investment in return-generating plans allows making an income via the expansion of gains.
However, understanding the whole concept of investment is essential before investing your money. Also, sometimes it can be challenging to choose suitable investment plans that fit your financial goal. Thus, understanding the meaning of investment with its different types will help you make the most profitable investment in distinct financial situations. So let’s discuss the meaning, types, and importance of investment in details.
Investment definition and meaning
Definition- Investment generally refers to putting money in a property, business, bank, or any asset with the goal of increment of money or income generation.
A person can make financial investments in different forms such as stocks, bonds, mutual funds, gold, endowment plans, public provident funds, and many more. However, the ultimate goal behind all kinds of investments is the same, which is the increment of the invested money. People always make investments to grow their money more effectively. They can use generated wealth for different purposes such as savings for retirement, meeting income shortages, or fulfilling specific obligations like repayment of loans, payment of bills or fees, or purchase of assets.
Types of Investment
You can make investments in different types to engage your money to gain more profits. So it would be best to explore the different investment options for shortlisting the ones that suit the most to your needs. Well, investments are divided into two classes, that is equity and debt. Equity refers to investing in companies’ shares and debt refers to investing funds in money market instruments.
Here we have listed the important investment types, so let’s read them to pick out the most suitable one:Stocks:
Stocks are one of the most common types of investment in which most people invest, but is also known as the riskiest investments. It represents the ownership share of an individual in the company. Investment stocks provide returns through fluctuation in the price of shares or dividends. If the price of the share you invest in will increase you will have profit and if the price of shares declines, you will have a loss.
Bonds:
Bonds are another popular type of investment, which is mainly a tool of borrowing. Bondholders hold the right to the company’s assets, so bonds are considered more secure than stocks. The bonds have a more stable return on investment when compared to stocks.
Mutual Funds:
Another popular type of investment is Mutual funds, which mainly refers to professionally managed pooled assets. Mutual funds pool money from different investors to pay for securities. This investment form allows people to invest their amount regularly even if it is small. The investors can select the asset portfolio according to their risk profile.
Unit Linked Insurance Plans
ULIP refers to a life insurance plan that allows investors to invest their money in diversified funds in accordance with their risk profile. The investors will get tax-saving benefits and market-linked returns on the investment. The return on this investment comes as per your portfolio, while the risk involved is high.
Gold
Investment in gold is also very popular as it allows investors to invest their money for the long term. However, physical gold could be risky for investment as they are expensive and may have storage issues. So, you can invest in gold in its electronic form as they have no such issues. Gold Bonds and Gold ETFs are some of the best gold investment plans that always keep up with the price. Moreover, this form of investment offers medium returns with slightly low interest.
Public Provident Fund
PPF is a popular investment scheme offering fair rates of return with a sovereign guarantee. PPF allows investors to build quite handsome wealth, plus it will be tax-free. Moreover, the public provident fund helps an individual to build secure funds for the future.
What is the importance of Investment?
Before deciding to invest your money in any plans, it is important to understand why you should invest. Here is a list of some important benefits of investment, so let’s have a look below:
● It Keeps Money Safe
Investment is very important to keep the money safe and secure. It allows you to save your hard-earned money for the future so that you can utilize the money in times of need. Government bonds, fixed deposits, and savings accounts help to keep the money safe, which you can withdraw at a specific time.
● It Helps Money to Grow
Another important benefit of investment is that it helps money to grow into a bulk capital over time. Even the long-term goal of every investment is mainly capital appreciation, which helps individuals to secure the finance for their future.
● Steady source of Income
Clever Investments also helps to earn money in the form of a return on your invested amount, working as a secondary source of income. One of the most common examples of this approach is a fixed deposit on which investors get regular payout of interest or stocks that pay dividends consistently.
● Helps to Meet the Financial Goals
Investing also helps to achieve the long-term and short-term financial goals of investors without any excessive trouble or stress. Some investment plans come with short lock-in terms and high liquidity, which are ideal for raising funds for short-term goals, such as creating emergency funds or funding home expenses. While the investment plans that come with longer lock-in terms are ideal for meeting the long-term goals.
Final Words
Moreover, these are some of the explanations of why investment is important and beneficial for the financial stability of an individual.
FAQs
What is meant by non-financial investments?
The term non-financial investment refers to those investments which a person cannot trade on stock markets. The example of non-financial assets may include land, natural resources, real estate, etc.
What is the basic rule of investing?
The basic rule of investment is to ascertain your objective of investing, which means why you want to invest and what return you expect. It will help you to pick the most suitable investment plan for your needs.
What are the most popular types of investment in the market?
Various types of Investment schemes are available but the most popular are mutual funds, equity shares, bonds, and Traditional Insurance Products.
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