Investment- Defined

Investment World:

The act of Investing means laying out something with the expectation of Profit whether it is laying out of money, time or anything else for that matter.

Let us say, in this financial world we are laying out our money and Time to gain some thing in the future.

Companies will lay out money as capital and time with the expectation of profit in the future. If a company is recruiting a tyro means the company is investing money on him in terms of Training and time in terms of waiting for results because he won’t give immediate returns to the company.

So, we can say that Investment is the Money and time both are laid out with the expectation of Profit.

Be clear on the meanings of Trader and Investor.

-An investor is somebody, who lays out capital with expectation of profit in the future.

-A trader is somebody, who purchases and maintains an inventory of goods or shares to be sold

A trader can’t become an Investor and an Investor can’t become a trader unless otherwise they change their style in the lay out of the money.

Be clear that the motto behind the act of investing is Profit only. Any investment with out expecting or not getting any profit is simply called as Expenditure. Why I am calling it as expenditure - because the value of money is not same at all the times and the value of one rupee will decrease day by day

Let me explain clearly….. We can buy a shirt for Rs.1000/- in 2008 but we can’t buy the same quality shirt with Rs.1000/- in 2010 because of inflation (Keep competition apart). If that Rs.1000 has to justify its value means it has to become Rs.1200/- in 2010.

If you invest with out expecting any thing, the capital that we invested will not justify its value because the value of money is not same at all the times and the value of one rupee will decrease day by day. So the money (Rs.1000/- in above example) has to work for itself and becomes the value equal to the future value (Rs.1200/- in above example) by the way we are investing. Otherwise that Rs.200 will become expenditure even though our invested amount is safe.

The funda here is the present value of money should justify the future value of the same once it is invested.

Money is only act as medium of Exchange but there are so many vehicles, where money can be invested and that invested money is called Capital and the earnings on that money are Capital Gains.

Total Earnings are equal to the sum of the Invested Capital and capital gains.

Future value of money is equal to the sum of Present value of money and capital gains of Present value.

Capital gains depend on the type of vehicles you invested and the risk you have taken. Here one more word we came across is Risk. Capital gains and Risk will go in tandem and both are directly proportionate. The more the risk you take, the more the capital gains you will have. Capital gains and Risk will depend on the type of investment vehicle you have chosen to invest.

The investment Vehicles are listed below.

1. Bonds
2. Debentures
3. Mutual Funds
• Open ended mutual Funds
• Close ended Mutual Funds
4. Stocks
5. Real estate
6. Derivatives

I will explain in detail about all these vehicles in my next articles.