Financial and Economic meaning of investment

Investment Setting

Introduction:

Investment is putting money into something with the expectation of profit. The word originates in the Latin "vestis", meaning garment, and refers to the act of putting things (money or other claims to resources) into others' pockets.

The term "investment" is used differently in economics and in finance. Economists refer to a real investment (such as a machine or a house), while financial economists refer to a financial asset, such as money that is put into a bank or the market, which may then be used to buy a real asset.

Financial meaning of investment:

Financial investment involves of funds in various assets, such as stock, Bond, Real Estate, Mortgages etc.

Investment is the employment of funds with the aim of achieving additional income or growth in value.

It involves the commitment of resources which have been saved or put away from current consumption in the hope some benefits will accrue in future. Investment involves long term commitment of funds and waiting for a reward in the future.

From the point of view people who invest their finds, they are the supplier of Capital and in their view investment is a commitment of a person s funds to derive future income in the form of interest, dividend, rent, premiums, pension benefits or the appreciation of the value of their principle capital.

To the financial investor it is not important whether money is invested for a productive use or for the purchase of secondhand instruments such as existing shares and stocks listed on the stock exchange.

Most investments are considered to be transfers of financial assets from one person to another.

Economic meaning of investment:

∑    Economic investment means the net additions to the capital stock of the society which consists of goods and services that are used in the production of other goods and services. Addition to the capital stock means an increase in building, plants, equipment and inventories over the amount of goods and services that existed.

∑    The financial and economic meanings are related to each other because investment is a part of the savings of individuals which flow into the capital market either directly

or through institutions, divided in new and secondhand capital financing. Investors as suppliers and investors as users of long-term funds find a meeting place in the market.