What’s is the investment ?

An investment is an assets or item acquired with the goal of generating income. 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.

Understanding of investment..!

The term “investment” can refer to any mechanism used for generating the future income. Common forms of of investment include financial markets (e.g stocks , bonds) , credits ( e.g load ) assets (e.g commodities and artwork) and real estate.

Why to invest ?

Let’s understand what would happen if one chooses not to invest. Let us assume you earn Rs.50,000/- per month and you spend Rs.30,000/-towards your cost of living which includes housing, food, transport, shopping, medical, etc. The balance of Rs.20,000/- is your monthly surplus. For the sake of simplicity, let us just ignore the effect of personal income tax in this discussion.

To drive the point across, let us make a few simple assumptions.

1. The employer is kind enough to give you a 10% salary hike every year
2. The cost of living is likely to go up by 8% year on year
3. You are 30 years old and plan to retire at 50. This leaves you with 20 more years to earn
4. You don’t intend to work after you retire
5. Your expenses are fixed and don’t foresee any other expense
6. The balance cash of Rs.20,000/- per month is retained in the form of hard cash

Going by these assumptions, here is how the cash balance will look like in 20 years.

If one were to analyze these numbers, you would soon realize this is a scary situation to be in. Few things are quite startling from the above calculations:

1. After 20 years of hard work you have accumulated Rs.1.7Crs.
2. Since your expenses are fixed, your lifestyle has not changed over the years, you probably even suppressed your lifelong aspirations – better home, a better car, vacations, etc
3. After you retire, assuming the expenses will continue to grow at 8%, Rs.1.7Crs is good enough to sail you through roughly about 8 years of post-retirement life. 8th year onwards you will be in a very tight spot with literally no savings left to back you up.

What would you do after you run out of all the money in 8 years’ time? How do you fund your life? Is there a way to ensure that you collect a larger sum at the end of 20 years?

Let’s consider another scenario where instead of keeping the cash idle, you choose to invest the cash in an investment option that grows at let’s say 12% per annum. For example – in the first year you retained Rs.240,000/- which when invested at 12% per annum for 20 years yields Rs.2,067,063/- at the end of 20th year.

With the decision to invest the surplus cash, your cash balance has increased significantly. The cash balance has grown to Rs.4.26Crs from Rs.1.7Crs. This is a staggering 2.4x times the regular amount. This translates to you being in a much better situation to deal with your post retirement life.
Now, going back to the initial question of why invest? There are a few compelling reasons for one to invest.

1. Fight Inflation – By investing one can deal better with the inevitable – growing cost of living – generally referred to as Inflation
2. Create Wealth – By investing one can aim to have a better corpus by the end of the defined time period. In the above example, the time period was up to retirement but it can be anything – children’s education, marriage, house purchase, retirement holidays, etc
3. To meet life’s financial aspiration

Let’s see how investment help to grows nations economy

This was about the personal benefit and advantage from investment.

Investment and Economy

Economic growth can be encouraged through the use of Sound investment at the business level. Ex: when a company constructs or acquires a new production equipment in order to to raise the total output of goods within the facility , the increased production can cause the nations gross domestic product (GDP) to rise. This allow the economy to grow through the increased production based on the previous equipment investment.

This is how the investment keeps playing the important role in development of individuals as well as of nations.

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