What are the types of investment?
Investments may be classified as financial investments or economic investments. In the financial sense, investment is the commitment of funds to derive future income in the form of interest, dividend, premium, pension benefits, or appreciation in the value of the initial investment. Hence, the purchase of shares, debentures, post office savings certificates, and insurance policies are all financial investments.
Such investments generate financial assets. These activities are undertaken by anyone who desires a return and is willing to accept the risk from the financial instrument. Economic investments are undertaken with an expectation of increasing the current economy’s capital stock that consists of goods and services. The capital stock is used in the production of other goods and services desired by society.
Investment in this sense implies the expectation of formation of new and productive capital in the form of new constructions, plant and machinery, inventories, and so on. Such investments generate physical assets and also industrial activity. These activities are undertaken by corporate entities that participate in the capital market. Financial investments and economic investments are, however, related and dependent.
The money invested in financial investments is ultimately converted into physical assets. Thus, all investments result in the acquisition of some asset, either financial or physical. In this sense, markets are also closely related to each other. Hence, the perfect financial market should reflect the progress pattern of the real market since, in reality, financial markets exist only as a support to the real market.
Such investments generate financial assets. These activities are undertaken by anyone who desires a return and is willing to accept the risk from the financial instrument. Economic investments are undertaken with an expectation of increasing the current economy’s capital stock that consists of goods and services. The capital stock is used in the production of other goods and services desired by society.
Investment in this sense implies the expectation of formation of new and productive capital in the form of new constructions, plant and machinery, inventories, and so on. Such investments generate physical assets and also industrial activity. These activities are undertaken by corporate entities that participate in the capital market. Financial investments and economic investments are, however, related and dependent.
The money invested in financial investments is ultimately converted into physical assets. Thus, all investments result in the acquisition of some asset, either financial or physical. In this sense, markets are also closely related to each other. Hence, the perfect financial market should reflect the progress pattern of the real market since, in reality, financial markets exist only as a support to the real market.
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