Types of Financial investments

Saptaswara Chakraborty | North Eastern Hill University | 21st June 2020

Introduction

Any investment done in today’s world is done with an expectation that is to be provided with something better for the future. Alternatively, even to be acknowledged into a bigger total of cash. An investment is an asset that is consumed or acquired with the particular goal of generating a certain kind of revenue or a form of appreciation. There can be an economic investment wherein a particular product is bought which is not primarily used today but can be used in future for generating wealth. Similarly, financial investments are rather monetary investments done or a monetary asset purchased with the idea that such an asset would be used in order to provide income for future or will later be sold at a considerable price. The term investment can be referred to as any mechanism that is used for generating a future income. When we talk about financial investment, it can be done in various forms, some including bonds, stocks or even a real estate property. In this article, we shall be dealing with the various types of financial investments, while also understanding what a financial investment is.

What is a financial investment?

Often at times, we get to hear that someone is planning to invest in stocks, bonds or even mutual funds. These are all a type of financial investments done to be provided with or even generating revenue by such investments. A financial investment may be an asset on which someone might put up their money with the hope that such an investment would grow or appreciate into a more substantial sum of money. The basic idea of such an investment is to sell it at a much higher price of such a product. The critical factor in such an investment is time, the more time is invested, the more risks can be taken, but if such an investment is rather short-lived, then such an investment would not have the probable capacity of what it would otherwise have. While dealing with a financial investment, we should remember the following:

• Appreciation- It is the proportion or the per cent of how much an investment has grown in value.
• Dividend- This secondly is instead a form of cash payment that is paid through financial investment. Such a payment is usually a form of profit or even a success earning of a company.
• Interests are the fee a bank, in an institution or a government, pays for loaning them the money in various forms such as a CD or even a bond.

Qualities of a financial investment

Financial investments nowadays are the most sought after investment. Therefore the investment is a favourable vehicle for the customers as though it gives a few favourable circumstances to a speculator, therefore including the accompanying. Some of the benefits or the qualities of financial investment are:

• Whatever investment is made as profits or other premium wages when pronounced for the reserve, so that with that amount, it may be used to utilize extra affairs in the common store, thus helping the business to develop in return
• Such an investment has the capability of providing good services in the exchange system, and such an investment provides a significant number of benefits when one decides to put upon specific resources into the securities exchange.

Types of financial investments

• Stocks– Whenever anyone buys or takes in possession of such a stock, he or she becomes a proprietary of such a company. Each share represents a form of representation in the company, and the stockholders are subjected to pay-outs after having acquired a success within the company. A stock, when compared with a bond, is instead a moderately high potential return. 
• Bonds- A bond may be seen as a form of a promise to pay the value of the bond to such a holder after a specified period. It can be understood in such a way that whenever anyone issues a bond, it acts as a form of a loan to a company or a government entity, etc. They are issued for a specific period during which interest payments are made to the bondholder. The amount of payment depends on the interest fixed or established by the issuer of the bond. Such a rate is called the coupon rate, which may be fixed or even a variable. While comparing a stock with that of a bond, a bond is much more stable because of the steady flow of income, but since it is a stable form, the return may be less when compared with the stocks.
•  Mutual funds-A mutual fund represents a combination of financial investments, including stocks, bonds and various other financial investments, and its management is given or assigned to a mutual fund manager. There are three forms of mutual funds in total out of which the growth-oriented fund includes a more significant proportion of stock. Mutual funds can also be done through a Systemic Investment Plan (SIP) or any other form which offers an in-built diversification. 

Conclusion

A financial investment, therefore, is a profitable alternative of saving and controlling the use of money. Various alternatives are present for financial investment, but one of the most lucrative methods of financial investment is through mutual funds. It offers a more economically efficient, professionally managed and a skill-based investment.