Understanding Investment

Types of Investment and Investors

Types of Investment and Investors

There are various types of investment prevailing in the securities markets. Considering various concepts and the nature of investments, they are classified into four broad categories. 

Types of Investment

Consumer Investment

Business or Economic Investment

Financial or Security Investment

Analyst’s investment


Consumer investment:

The concept of consumer investment relates to the purchase of durable consumer goods by the consumer.

Typically, this is not investing one’s funds but it is a savings process. Usually, the income derived from the purchase of durable consumer goods comes not in the form of money but in the form of services and amenities of property ownership.

Business or economic investment:

The concept of business or economic investment refers to a situation where money is used to purchase business assets that will produce income that will be adequate compensation for the risk involved in the venture.

The profit motive is the main object of this concept of investment. The businessman is thoroughly willing to purchase productive assets to earn a profit and is aware of the risk involved.

Economic or business investment, therefore, is any investment in assets that brings about the production of goods and services and real terms for the purpose of earning a profit commensurate with the risk involved.

Financial or security investment:

Financial or security investment refers to the purchase of an asset in the form of securities producing a profit for the investors.

The investor assuming all the risk involved in such a purchase tries to keep the risk to a minimum and at some time he maximizes the profit.

Financial or security investments may broadly be categorized, which are our main focus and are subject to discussion in accordance with their sources of issuance and the nature of the buyer commitment.

Analyst’s investment:

An analyst’s investment refers to the operations that promise the safety of the principal and an adequate return. These are the various types of investments out of which an investor can select to invest his/her investible funds commensurate with his objective.

Types of Investors

Investors are broadly classified as follows:

Local Investor

  • Individual Investor
  • Institutional Investor

Foreign Investor

Local Investor

Local investors are those who invest their unutilized funds in their own country in various sectors they like depending upon the prospective future returns and assuming minimum risk.

Local investors are also subdivided into two categories, Individual investors and Institutional investors.

Individual investors

Individual investors are those who deploy their funds individually in the local market to purchase securities like shares, bonds, debentures, stocks, etc., deposit them into their bank accounts, and invest their funds in purchasing insurance policies and the like.

The main objective of the individual investors is to earn maximum return assuming minimum risk.

Institutional investors

Institutional investors include firms, companies, corporate bodies, or financial institutions like banks, insurance companies, and investment companies that invest funds institutionally in the capital market by purchasing shares, stocks, bonds, debentures, and/or other securities with the help of recognized brokers. Institutional investors do not have a problem with having available funds but individual investors have a unique problem with surplus funds.

Foreign investor

Foreign investors are those who invest their funds in the overseas capital market independently or under joint venture arrangements through purchasing securities of overseas vendor companies or of the government.

Foreign investors also invest directly in establishing overseas industries. They help overseas industrialization under joint venture ownership.

The objectives of foreign investors are mainly to earn profit and to capture the foreign market in order to flourish their local merchandise.


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