What is an Investment ?

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When it comes to investment, many of us are not sure as to what is considered as an investment.  For some, buying gold or real estate is an investment and for some buying a car or an insurance plan is an investment and for others stocks, mutual funds and fixed deposits are considered investment.

Most of us in India put our money in fixed deposits or into real estate.  Many of us buy gold especially those that have a girl child.  When it comes to other investments like stocks or mutual funds  some consider it as gambling and  sure way to lose some hard earned money.  When they hear someone talk about PE, Book Value, Earning growth etc. they look like the Taare Zameen Par kid who sees only dancing numbers and does not understand anything.  I will first attempt to make it clear as to what is considered an investment and then we will see each investment class.

As per dictionary.com,  investment means the investing of money or capital in order to gain profitable returns as interest, income, or appreciation in value.  So, if something you bought diminishes in value the moment you walk out of the door after purchase, it cannot be called an investment. Things like car, bike or any expensive consumer goods that we buy just for use by us cannot be considered an investment.  Their value neither appreciates nor does it provide any income after you buy it.  However, if you have bought them to get some investment return, then it can be considered as an investment.  For example, if  you bought a car to be used as a call taxi, it can be considered an investment.

Listed below are some of the most common asset classes in which investments are made other than running your own business

• Real Estate and Property
• Fixed Deposits
• Precious metals and gems
• Insurance
• Equity/Stocks
• Mutual Funds
• Bonds
• Currency
• Commodity
• Collectibles

In my next post, I will cover each asset class that I have listed.