Write a note on Investment




Investors choose to hold groups of securities rather than single security that offers the greater expected returns. They believe that a combination of securities held together will give a beneficial result if they are grouped in a manner to secure higher return after taking into consideration the risk element. Traditional portfolio analysis has been of a very subjective nature but it has proved success to some investors who have made their investments by making analysis of individual securities through evaluation of return and risk conditions. The investor has been able to get the maximum return at the minimum risk. The normal method of calculating the return on individual security is to find out the amount of dividends, price earning ratios, common holding period and an estimate of the market value of the securities. The modern portfolio theory believes in the maximisation of return through a combination of securities. It deals with the relationship between different securities and inter – relationships of risks between them. An investor can achieve a success by making a choice of investment outlets and combining a security of low risk with another security of high risk.




The concept of investment has many meanings. Investment is the employment of funds with the aim of getting return on it. It is the commitment of funds which have been saved from current consumption with the hope that some benefits will be received in future. Thus, it is a reward for waiting for money. Savings of the people are invested in assets depending on their risk appetite and return.


There are two concepts of investment:


(1)   Economic Investment: The concept of economic investment means additions to the capital stock of the society. The capital stock of society is the goods which are used in the production of other goods. The term investment implies the formation of new and productive capital in the form of new construction and producers durable instrument such as Plant & Machinery, Inventories and human capital are also included in this concept. Thus, an investment, in economic terms means an increase in building, equipment, inventory.


(2)   Financial Investment: This is an allocation of monetary resources to assets that are expected to yield some gain and return over a given period of time. It is a general or extended sense of the term. It means an exchange of financial claims such as shares and bonds, real estate, etc. Financial investment involves contracts written on pieces of paper such as shares and debentures. People invest their funds in Shares, Debentures, Fixed deposits, National Saving certificates, Life Insurance Policies, Provident Funds etc. In their view, investment is a commitment of funds to derive future income in the form of interest, dividends, rent, premiums, pension benefits and the appreciation of the value of their principal capital.

Meaning of security:

A security means a document that gives its owner a specific claim of ownership of a particular financial asset. Financial market provide facilities for buying & selling of financial claims and services. Thus, securities are the financial instruments which are bought and sold in the financial market for investment. The important financial instruments are shares, debentures, bonds etc. Other financial instruments are also known as securities such as Treasury Bills, Mutual Fund Units, Fixed Deposits, Insurance Policies, Post Office Savings like National Savings Certificates, Kisan Vikas Patras, Public Provident Funds etc.

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