Investment activity is the key to effective economic development at any level. An indispensable condition for making investments is the availability of free money that the investor is ready to invest in any project. Such funds represent sources of investment. There are a huge number of them in the modern world.
In order for investors to clearly perceive the current economic situation, a classification was invented that made it possible to structure all possible sources of investment financing.
Main types of investments
First of all, it is important to note such types of investments as portfolio and real investments.
Thus, portfolio investments are a collection of certain investment instruments (an investment portfolio consisting of many assets) that are used by the investor to achieve his financial goals. For example, receiving tangible passive income.
Investment instruments are usually investments in various stocks, precious metals, currencies, as well as investment projects. Moreover, there are many companies that specialize specifically in the compilation and constant monitoring of such investment portfolios. But here the types of financial investments are just beginning.
As for real investments , they should be considered in more detail. Thus, real or capital-forming investments are often long-term investments of monetary capital in production or certain consumer goods, as well as tangible and any intangible assets (for example, intellectual property, fixed and working capital, etc.). In this case, borrowed funds, including a loan, can often be used. In such a situation, the bank actually also becomes an investor who makes real investments.
Internal sources
Domestic sources of investment financing differ at the microeconomic and macroeconomic levels.
For the state, these are primarily budget funds. They are formed through the payment of taxes, fees, duties, income from state property, paid services and state enterprises. For a better understanding of this issue, we recommend that you read the article “Investment Policy of Russia”.
In addition, the specific level of internal sources of investment throughout the state is influenced by:
- savings of the population and commercial companies - potential investment funds from private investors;
- the country's savings - in the form of various reserve funds.
At the company level, internal sources of investment include:
- net profit;
- authorized capital funds;
- issue of securities;
- depreciation deductions.
Net income is rarely the main source of investment. As practice shows, its volumes are almost never enough to implement serious investment projects. It is a rare company that can boast that it has enough net profit to carry out full-fledged investment activities.
The authorized capital represents the amount of money that was initially invested by the founders of the company to ensure the normal provision of its authorized activities. Its value as a result of economic activity can be reduced or increased by an agreed decision of all founders. This fact must be reflected in the constituent documents. By decision of the founders of the company, the funds forming its authorized capital may be spent on investments.
Issue of securities by a company. This method of self-financing investment projects all over the world plays a colossal role. This statement is especially true for large, well-known companies. At the same time, in our country it is at the stage of active development. This source of investment is formed through the issue of bonds and shares, which can be purchased by both individuals and legal entities.
Depreciation deductions. This is the name for funds that must be systematically allocated to replace the worn-out part of production assets. In Russia, in modern economic conditions, these depreciation charges do not play a serious role due to their insignificant volume and significant inflation rates.
Types of real investments
- investments in your enterprise to increase its productivity and efficiency (complete replacement of old equipment with new ones, relocation of main production facilities, global modernization of the organization’s assets, etc.);
- investments made in new production that has just been formed (there is a complete modernization and reconstruction of an existing organization or the creation of a completely new production);
- contributions to the expansion of an enterprise (so-called extensive investments), which are made to increase the volume of production of an already existing organization;
- contributions to a certain foreign enterprise, where the investor takes part in investment projects, as well as orders;
- investments made in government structures at the request of various government bodies (this happens in situations where it is necessary to satisfy the needs of local authorities to comply with any economic standards, various safety standards and various other operating standards).
Also, such real investments also include all kinds of contributions to intangible assets, such as advanced training of working personnel, various scientific research, introduction of the latest technologies, development of progress, etc. But there are many other types of financial investments that you should know about.
It is interesting that, depending on the content of the deposit itself, investments can be not only in the form of financial capital, but also movable property, real estate, rights to own certain values, rights to own and dispose of a specific land plot and many other material or intellectual benefits and resources.
Investments are also divided according to the nature of participation in the investment into direct and indirect.
- Direct investments imply that the investor independently chooses the instruments for investing his savings.
- Indirect investments are very different from the first ones in that the investment of the investor’s funds is carried out by financial intermediaries, money consultants or investment organizations to which the investor has entrusted his savings.
Based on duration, investments are divided into the following types:
- short-term (deposits are made for a period of up to one year);
- medium-term (the period of such investment is from 1 to 3 years);
- long-term (investment duration is from 3 to 5 years or more).
Investment strategy as the basis of an enterprise’s activities
The long-term goals of the enterprise's investment activities, consistent with the general directions of its development, are formalized in the investment strategy. It sets out the investment ideology that the company adheres to. In addition, it sets out specific tools for achieving these goals, which, according to market conditions, are the most effective.
The development of an investment strategy requires appropriate creative activity from authorized persons, since in this case it is necessary to create a master plan of activity individually for a given commercial organization operating in a given area in a given time period. This means the need:
- setting goals and their decomposition into tasks;
- determining priority areas and forms of investment activity;
- approval of methods for the formation of investment resources, their structure and distribution;
- building relationships with the external investment environment.
This strategic document allows you to give an objective assessment of the investment potential of the enterprise and realize it to the maximum, taking into account the changing conditions of the internal and external environment.
Types of financial investments depending on the form of ownership itself
- Private investments . These are those deposits that are made by various citizens (private individuals) and many enterprises that do not belong to the state.
- Public investments are those investments that are made by local or central authorities or enterprises owned by the country, using finances from the state budget itself, as well as various extra-budgetary funds and loans.
- Foreign investments are, as you might guess, those investments made by various citizens of other states, the states themselves, the union of some countries, as well as all sorts of international organizations.
- Joint investments are investments that are made by entities of a given country together with individuals and certain organizations of other states.
Can government investments be profitable in principle?
A significant part of the funds is invested in promising and profitable projects, which also provide for a certain share of state ownership. These are military developments, economic transformations, agricultural development, and real estate construction. Such public investments pay for themselves in 5–10 years and can generate profits in the future.
Examples include the Talvar naval frigates supplied to India, the Fuzhou destroyers for China (each costing $500–700 million), and the exported Be-200 amphibious aircraft. This is the construction of the Nokian Tires and Toyota factories in the St. Petersburg region, the international business center, the Bureyskaya hydroelectric station, the Amur and M11 highways, high-speed railways and the Crimean Bridge.
Characteristics of types of financial investments depending on the degree of risk
- Low risk deposits . As a rule, the profitability of such investments ranges from 5 to 10–15 percent per annum (this includes a bank deposit, investments in real estate (although in this case the income may be higher), as well as certain investment companies that adhere to a conservative investment strategy).
- Medium risk deposits (from 15 to 30% of profit per year). As an example of such investments, it is possible to cite investments in mutual funds and some investment companies that are able to provide the above interest rates.
- High-risk deposits (yield of 50% per year or more). Such profit figures do not mean that your investment is more likely to fail. But, for example, investments in the foreign exchange market, various company shares, or simply speculation are characterized by a high degree of risk, but if successful, they can bring significant dividends.
Investments also differ regionally – investments within the country and abroad.
Analysis
First of all, a detailed analysis of financing is carried out. The real state of investment for a certain previous period of work is analyzed. The policy of managing real investments involves a thorough study of existing experience. It is important to assess the degree of investment activity of the company, as well as determine the degree of efficiency and effectiveness of programs that have already been started and completed at the previous stage of work. The analysis takes place in several stages. Real investment management should be based on objectivity:
- First, they examine the dynamics of financing in the growth of real assets, as well as the percentage of real financing in the volume of total investments of the enterprise.
- Then the level of effectiveness of individual financing programs and the degree of their successful implementation are examined.
- Then it is important to find out how successful past investment programs have been. It is necessary to determine the exact amount of investment that is required to complete the programs.
- At the fourth stage, the final stage, an analysis of the effectiveness of financing programs that have already been completed is carried out. It is determined to what extent they correspond to the planned indicators at the operational stage.
Types of financial investments depending on the investment objects themselves
- Investments in physical assets . In this case, capital is invested in developing the potential of any particular industry or the entire enterprise. And thanks to this, results and production indicators are significantly improved.
- Investments in any intangible assets . That is, investments in those objects that do not belong to material assets at all. Often this is an investment in copyrights or land ownership documents, including patents, some licenses and trademarks.
- Innovative investments . This is an investment of capital in many training programs or objects that are related to scientific and technological progress.
- Net investment . They are carried out if, in the process of investing funds, a completely new organization is acquired.
- Gross investment . Produced by the combined use of free net investments and reinvestments to invest them in one investment object. Often such deposits are aimed at purchasing and generating new financial resources for the needs of the enterprise in order to maintain fixed assets.
As you can see, the world of investing and the types of financial investments themselves turned out to be much more extensive, interesting and varied than you might think, and the opportunities for investing money are practically everywhere around us. The main thing is to learn to notice them and use them correctly. Good luck!
Precious metals
Investing in precious metals is almost always popular among investors. This is due to the fact that this type of metal has always existed and will exist tomorrow and the day after tomorrow. In addition, precious metals are always in demand. This asset is often called eternal. This feature of this type of asset is used as risk diversification. It is generally accepted that the cost of precious metals cannot fall to zero like the cost of shares; therefore, investors often purchase these metals to neutralize (reduce) their risks.
You can invest in precious metals both in material form (ingots) and by purchasing metal through banks by opening metal accounts. Precious metals usually include gold, silver, palladium, and platinum. This tool is actively used in long-term investment strategies.
Deposits
Banks attract money from individuals and companies to then lend it out or trade in financial assets. They guarantee repayment of interest on the deposit, as well as a full refund of funds upon expiration of the period chosen by the client.
There are deposits in foreign currency, but practice shows that such investments are unreliable.
Two important aspects.
- In Russia, according to the law, the state will reimburse the full amount of the deposit in the event of a bank collapse, if it is less than or equal to 1,400,000 rubles.
- Now the best strategy is to choose a longer term, because the deposit rate follows the key rate, and the Central Bank intends to lower it.
