An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.
Investment is done with a conscious state of mind by any individual. It involves deployment of cash in the form of securities or assets, which are being issued by any financial institutions. This deployment of money is done to achieve a targeted profit within a specific tenure.
Target returns expected on an investment involves:
1. Maximizing the value of security or assets, and/or
2. The investment must be the source of regular income.
There are various types of investments:
1. Autonomous Investment
An investment which does not change with the changes in income level is called as Autonomous or Government Investment.
2. Induced Investment
An investment which changes with the changes in the income level is called as Induced Investment.
3. Financial Investment
The investment made in buying financial instruments such as new shares, bonds, securities, etc. is considered as a Financial Investment.
4. Real Investment
An investment made in new plant and equipment, construction of public utilities like schools, roads, and railways, etc., is considered as Real Investment.
5. Planned Investment
The investment made with a plan in several sectors of the economy with specific objectives is called as Planned or Intended Investment.
6. Unplanned Investment
In an unplanned type of investment, investors make investment randomly without making any concrete plans. Hence it can also be called as Unintended Investment. Under this type of investment, the investor may not consider the specific objectives while making an investment decision.
7. Gross Investment
Gross Investment means the total amount of money spent for creation of new capital assets like Plant and Machinery, Factory Building, etc. It is the total expenditure made on new capital assets in a period.
8. Net Investment
Net Investment is Gross Investment less (minus) Capital Consumption (Depreciation) during a period of time, usually a year.