In economics, investment is understood as a set of saving mechanisms, location of the capital, and postponement of consumption, to obtain a benefit, revenue, or a profit, that is, to protect or increase the assets of a person or institution.
In other words, the investment consists of using a surplus of capital in a given economic or financial activity or the acquisition of high-value goods instead of clinging to “liquid” money. It is done hoping that the remuneration will be substantial, and the money invested will be recovered in a not too long term.
Thus, investment can be understood from many perspectives, both macro and microeconomic, that is, the financial management of entire countries or individuals and companies.
In the first case, the investment is considered part of the gross capital formation, one of the determining factors in the constitution of the Gross Domestic Product (GDP). The goods produced by a nation can go to domestic consumption, exports, or be acquired as an investment asset.
However, it is understood as the use of a portion of capital to boost some economic or financial activity pending a return (profits), or at least to safeguard the capital from harmful factors such as inflation.
Types of investments
First, investments are classified depending on the time in which the return (return) is expected. You can talk like this about:
- Investments are temporary. Of a transitory nature, they are made with the ultimate goal of making surplus capital of ordinary production productive instead of relying on a bank account. They usually last for one year and are typically made in high-quality values, which can be sold easily quickly.
- Long-term investments. They are made for a period greater than one year without waiting for immediate compensation and maintaining their owner during the said period.
- Another possible classification distinguishes between public and private investments according to the profile of the transaction and the subject that performs it. Likewise, according to the destination of the funds (the object in which it is invested), they can be real estate, stocks, bonds, or foreign currency.
Elements of an investment
The investments are composed of the following macroeconomic elements, whose sum provides the total investment:
- Gross fixed capital formation (FBCF). One of the macroeconomic concepts that measure the value of acquisitions of new and existing fixed assets, less the transfer of assets made by the State or the government in question.
- Training needs fixed capital. It is obtained by discounting the consumption of fixed capital (depreciation) to the gross formation of fixed capital and represents the value of the resources that have been provided for investment in fixed assets,
- Stock variation. Calculable by checking stocks at the end of a given period, with its equivalent in the previous year.
Top three investment options
National System of Pension
It is a long-term retirement as Pension Fund Regulatory and Development Authority (PFRDA) focuses on investment product management. The minimum annual contribution of April-March for NPS Tier-1 has decreased. It happened for its continuous activation. It is a mixture of government funds, corporate bonds, fixed deposits, equity, liquid funds, etc. Decide the money invested in equities by NPS at your own risk.
Provident Fund for Public
It is a product for which anyone can rush. The compounding impact of tax-free interest has increased, especially in the year later, due to 15 years of Provident Fund for Public tenure. The investment becomes safest since the sovereign guarantees an earned interest and principal investment. The government reviews the interest rate on Public Provident Fund every quarter.
Fixed Bank Deposit
It is comparatively secure than mutual or equity funds. Each depositor can insure up to a maximum amount for interest and principal amount as per the rule of deposit insurance and credit guarantee corporation (DICGC).
In the past, the coverage amounts were higher for both principal and interest rates. According to the requirements, you can choose the monthly, half-yearly, quarterly, annual, or cumulative interest options. Bank adds the earned interest rate to one’s income, and it includes tax according to the slab of one.
With financial market-linked, investments are fixed income. Both of them are essential elements of wealth creation. Market-linked investments provide high return potential, including high risks. Fixed-income investment preserves your accumulated money as it fulfills the desired aim.
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