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  1. INVESTMENT AND SPECULATION Ramya B Assistant Professor Sri Ramakrishna College of Arts and Science Coimbatore - 641 006 Tamil Nadu, India 1
  2. Investment Definition & Meaning • An investment is an asset or item acquired with the goal of generating income or appreciation. Appreciation refers to an increase in the value of an asset over time. When an individual purchases a good as an investment, the intent is not to consume the good but rather to use it in the future to create wealth. • For example, an investor may purchase a monetary
  3. Types of Investments Economic Investments • Within a country or a nation, economic growth is related to investments. When companies and other entities engage in sound business investment practices, it typically results in economic growth. • For example, if an entity is engaged in the production of goods, it may manufacture or acquire a new piece of equipment that allows it to produce more goods in a shorter period of time. This would raise the total output of goods for the business. Taken in combination with the activities of many other entities, this increase in production could cause the nation’s gross domestic product (GDP) to rise.
  4. Investment Vehicles • An investment bank provides a variety of services to individuals and businesses, including many services that are designed to assist individuals and businesses in the process of increasing their wealth. • Investment banking may also refer to a specific division of banking related to the creation of capital for other companies, governments, and other entities. Investment banks underwrite new debt and equity securities for all types of corporations, aid in the sale of securities, and help to facilitate mergers and acquisitions, reorganizations, and broker trades for both institutions and private investors. Investment banks may also provide guidance to companies who are considering issuing shares publicly for the first time, such as with an initial public offering (IPO).
  5. SPECULATION Definition of 'Speculation' • Definition: Speculation involves trading a financial instrument involving high risk, in expectation of significant returns. The motive is to take maximum advantage from fluctuations in the market. • Description: Speculators are prevalent in the markets where price movements of securities are highly frequent and volatile. They play very important roles in the markets by absorbing excess risk and providing much needed liquidity in the market by buying and selling when other investors don't participate.
  6. Speculative Investment • A speculative investment is one with a high degree of risk where the focus of the purchaser is on price fluctuations. The investor buys the tradable good (financial instrument) in an attempt to profit from market value changes. • We call somebody who makes a speculative investment a speculator. He or she is less concerned with the fundamental value of a security, and more on price movements. The investor doesn’t care about the annual income the asset may bring, such as dividends or interest payments. What matters is how much he or she can sell it for at a future date. • Speculative investments may occur in markets for real estate, stocks, currencies, antiques, fine art, commodity futures, and collectibles.
  7. DIFFERENCE BETWEEN SPECULATION AND INVESTMENT BASIS FOR COMPARISON INVESTMENT SPECULATION Meaning The purchase of an asset with the hope of getting returns is called investment. Speculation is an act of conducting a risky financial transaction, in the hope of substantial profit. Basis for decision Fundamental factors, i.e. performance of the company. Hearsay, technical charts and market psychology. Time horizon Longer term Short term Risk involved Moderate risk High risk
  8. BASIS FOR COMPARISON INVESTMENT SPECULATION Intent to profit Changes in value Changes in prices Expected rate of return Modest rate of return High rate of return Funds An investor uses his own funds. A speculator uses borrowed funds. Income Stable Uncertain and Erratic Behavior of participants Conservative and Cautious Daring and Careless