Business investment simply refers to commitment of funds to a business in an active or passive manner. The main motive of business investments is earning returns on the investment made or in other words earning profit. There are many ways of investing in a business. Most people have heard about stocks, bonds etc. but they don’t know that there are other ways in which an investment can be made into a business like mutual funds, real estate etc.
Business investments can be categorized into the following types:
- Ownership investments: These are the ones where the investor buys an asset that is bound to increase in value over a period of time. Ownership investments can be categorized into:
- Stocks: These are also known as equity or shares that give an investor a stake in the business and its profits. Stocks basically mean that the investor partially becomes the owner of the business.
- Real estate: Any property that one buys and then rents out or resells is an ownership investment. This is because this investment offers returns or profits after a certain time period.
- Precious objects: Precious objects like metals, art, collectibles etc. are all ownership investments when the person investing has an intention of reselling these later at a profit.
- Lending investments: Lending investments are the ones that allow the investor to act like a bank wherein the investor buys debt that is to be repaid later. These are low-risk investments as well as low-reward investments. Lending investments can be divided into:
- Bonds: A bond is any type of debt investment. When an investor buys a bond, he or she lends money to the entity from whom the bond is purchased. This money is then repaid later with a fixed rate of interest.
- Certificate Deposit: A certificate deposit is a promissory note issued by a bank in exchange of the money that one puts into the bank. The money invested is stay put for a fixed time period depending on which a fixed rate of interest is paid to the investor. Generally, the higher the period of investment, the greater is the interest rate.
- Cash Equivalents: Cash equivalents are investments that are as good as cash in the sense that these can be easily converted back to cash as and when needed. Money market funds are cash equivalents that offer a low rate of interest but also involve very low risk. Money market funds are also more liquid that one other type of investment and can be easily converted back to cash as and when required.
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