Investment – Significance & Categories

Investment – Significance & Categories

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The process of investing money in profitable operations to generate income is called investment. It can be done directly (in various tertiary, secondary and primary sector activities) or indirectly (within financial securities such as mutual funds, bonds, debentures & shares).

Significance of Investment in the Economy - The Government attempts to mobilize the necessary funds (resources) to promote the various goals of planned development through investment, which is a means and tool.

• Effective demand, which in turn depends on spending on goods for consumption and investment (Y= C + I), determines the level of income, output, and employment in an economy.

• Investment is a factor in overall Demand; changes in Venture shift the total Interest bend by how much the underlying change times the multiplier.

• An investment alters the stock of capital; The production possibilities curve and the economy's aggregate production function are shifted by changes in capital stock.

Investments are categorized as follows:

1. Debt Investments - Debt-based investments can be further divided into two subcategories:

     a. Public Investments - These are investments that can be bought or sold on open debt markets. These are such things as bonds, debentures, and credit trades, among others.

     b. Investment Non-public (private) - These are any exchanges that create a resource on the asset report and are not straightforwardly or handily exchanged markets. The acquisition of accounts receivable or loan receivables from a different company is one example.

2. Equity investments - are considered to be more risky than debt investments, but they offer the potential for higher returns. Any equity-based investment that can be purchased or traded in markets are considered public equity investments. When people talk about investments, these are typically the kinds of investments that come to mind. Common stock, preferred stock, stock options, and stock warrants are all included in this category. Private equity investments typically involve investments of a greater scale that are beyond the means of a small investor.