Investment – the placement of capital for the purpose of making a profit. Investment is an integral part of the modern economy. Investments differ from loans in the degree of risk for the investor (lender) – the loan and interest must be repaid within the agreed timeframe, regardless of the profitability of the project, investments (invested capital) are returned and generate income only in profitable projects. If the project is unprofitable, investments may be lost in whole or in part.
Investments – cash, securities, other property, including property rights, other rights that have a monetary value, invested in objects of entrepreneurial and (or) other activities in order to obtain profit and (or) achieve another useful effect. KR McConnell and SL Brue in their book Economics defined investment as the cost of manufacturing and accumulating means of production, as well as increasing inventories.
Investment activity – investment and implementation of practical actions in order to obtain profit and (or) achieve another useful effect.
From the standpoint of the monetary theory of money, funds can be directed to consumption or savings. Simple saving withdraws funds from circulation and creates preconditions for crises. Investing, on the other hand, involves savings in circulation. It can occur directly or indirectly (placing temporarily free funds on a deposit in a bank that already invests itself).
It is believed that in order to attract investment, an enterprise must:
- Have a well-developed and forward-looking plan for the future. Investors want to know that their investments will bring profit in the future.
- Have a good reputation in the community. Investing in a shadow enterprise, investors run the risk of being left without profit, so they choose only those enterprises that inspire confidence.
- Conduct an open, that is, transparent activity. This requires accounting and media relations.
- Much depends on the domestic policy pursued in the country in which the enterprise is located. Investors choose the most stable countries for their deposits.
However, in practice, these conditions are necessary for portfolio investors. Investments may well be attracted without these conditions, but with the investor’s confidence in observing his rights to manage capital and profits. Such confidence can be guaranteed not only by laws and transparency of accounting but also by personal connections, for example, in the government or parliament, obtaining the right to direct control over the situation at the enterprise through a controlling stake and the appointment of a supervised director or personal direct management. An essential factor in attracting investment is the ratio of profit and risk. Some investors choose a lower risk, agreeing to a lower profit (and vice versa). Raw materials companies do not have to choose at all: they go where there is a resource.
In addition, special conditions are sometimes created to attract investment. An example of the creation of such special conditions is special economic zones (SEZ). For example, in Russia SEZ “Lipetsk”, SEZ “Alabuga”, SEZ “Togliatti”, and others have been created and are currently operating.
The set of conditions for an investor is sometimes referred to as the “investment climate”.
Pros and cons of attracting investment
At the initial stage, external investments provide companies with two main advantages:
- capital that allows you to move to the next stage of development;
- improve the quality of management, in particular by strengthening discipline and adjusting strategy.
Risk and reward
Investments are characterized, among other things, by two interrelated parameters: risk and profitability (profitability). As a rule, the higher the risk of an investment, the higher its expected return should be. The CAPM is often used to describe the relationship between risk and reward.
The value of investment risk shows the likelihood of losing investments and income from them. The value of the total integral risk consists of seven types of risk: legislative, political, social, economic, financial, criminal, environmental. In this case, the average Russian risk is taken as a unit, and the real indicators of the regions may deviate.
The conditions for doing business in a particular country (they are also called the investment climate) have a great influence on the amount of investment. The most important indicators of a favorable investment climate are guarantees of respect for property rights, predictability, and stability of the business environment.
Investment project – an economic or social project based on investment; justification of the economic feasibility, volume, and timing of direct investments in a particular facility, including design estimates, developed in accordance with applicable standards. Sometimes, for convenience, the concept of a business plan is singled out to designate a justification, while the project itself is called an “Investment project”.
Investment projects are divided into production, scientific and technical, commercial, financial, economic, socio-economic. In commercial practice, it is customary to distinguish: investments in financial assets; investments in monetary assets; investments in intangible assets.
Investment share – (in accordance with Federal Law No. 156-FZ “On Investment Funds” dated November 29, 2001) registered security certifying the share of its owner in the ownership of the property that constitutes the mutual investment fund, the right to demand from the management company proper trust management of a mutual investment fund, the right to receive monetary compensation upon termination of the trust management agreement of a mutual investment fund with all owners of investment shares of this mutual investment fund (termination of a mutual investment fund).
An investment share of an open-ended mutual investment fund also certifies the right of the owner of this share to demand from the management company the redemption of the investment share and payment in this connection of monetary compensation commensurate with the share attributable to it in the common ownership of the property that constitutes this mutual investment fund on any working day …
The investment share of a closed-end mutual investment fund also certifies the right of the owner of this share to demand from the management company the repayment of the investment share and the payment in this connection of monetary compensation commensurate with its share in the common ownership of the property constituting this mutual investment fund, in the cases provided for Federal Law No. 156-FZ “On Investment Funds” of November 29, 2001, the right to participate in the general meeting of the holders of investment shares and, if the rules of trust management of this mutual investment fund provide for the payment of income from the trust management of the property that constitutes this mutual investment fund, the right to receive such income.
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