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What is Investment?

What is Investment?
February 20, 2024


Investment is the process of investing your money in an asset with the objective to grow your money in a stipulated time period. Investment can be done in form of various investment plans such as life insurance plans, retirement plans, ULIPs, mutual fund and others. A simple example of an investment is the purchase of a financial asset to earn income from it in the future or resell it at a higher price to generate a profit. To learn more about 'what is investment,' read on to discover its types, objectives, benefits and how to choose the right option.

What is Investment Meaning?

Investing means putting your money into a investment plan that can increase in value or produce income. As responsibilities rise, greater amounts of investment will be necessary. These are some of the primary objectives for investing:

  • Protect your money by investing:

Keeping your money in an interest-bearing asset will shield it from unnecessary spending and inflation. Investing helps you stay ahead of inflation and ensures that your money continues to be worth the same value over time.

  • Build your wealth:

Investing is the only way to make your money work for you. It allows your money to accrue interest, and if you reinvest that interest, it will start to generate even more interest.

  • Create funds for emergencies:

Creating funds for unexpected expenses can help you weather the storms of life. When you are in a good financial position, it's important to set aside money for difficult times. Having these resources at your disposal can help you manage any challenges that come your way.

  • Ensure a stress-free retirement:

After your working life is over, you will no longer have a regular income to rely on. Retirement planning will give you the financial security to enjoy your retirement years without stress.

  • Maximize savings:

Investing in tax-saving instruments, including life insurance plans, ULIPs, PPF, NPS, etc can help you to deduct from your taxable income. Such investments also provide you with a tax-free return at maturity. Thus, by investing in the right assets, you can significantly reduce your overall tax liability.

  • Invest in life's bigger dreams:

Your salary alone is unlikely to be sufficient for you to buy a car or a house for your family. Nevertheless, by investing a small amount of money, you could make these objectives achievable in a few years.

How does an Investment Work?

An investment is an asset that is acquired with the purpose of allowing its value to increase over time. Investing can create wealth for a variety of purposes, such as to make up for shortages in income, save for retirement, or meet certain obligations like loan repayment, tuition payment, or the acquisition of other assets. To fulfil your financial goals, you need to understand investment meaning and compare investment and savings plans along with the right instruments to use to fulfil your financial goals.

Investment can provide income in two ways. First, if you invest in a sellable asset, you may earn a profit. Second, if you invest in a return-generating plan, you will earn revenue through the accumulation of gains. Therefore, investing can be thought of as the process of putting your savings into assets or objects that will become more valuable or generate income over time.

Types of Investments

In order to understand ‘what is investment’, it is important to first understand your financial goals, and then decide where to invest based on those goals. Apart from investing in physical assets such as real estate and jewellery, there are two main types of investments: equity and debt. Equity investments offer the potential for higher returns but also come with more risk. On the other hand, debt instruments are safer but offer lower returns. Further, understanding the meaning of investment can also be determined by how investments are obtained.

The following are different types of investments in India:


It involves owning shares of a company and earning dividends.


Investing in bonds means lending money to a government or other institution. In return, you will receive regular, fixed payments of interest and the original amount of money at the end of the bond's term.

3.Mutual Funds:

When investing in mutual funds, money from different investors is collected and managed by a professional fund manager. Depending on your risk appetite, desired investment period, and expected returns, you can invest in Equity, Debt, or Hybrid Mutual Funds. Moreover, investments made into ELSS (equity-linked savings plan) mutual funds qualify for deductions under 80C.


ULIPs, or Unit Linked Insurance Plans, are a combination of life insurance and investment. A portion of the premium is invested in different funds which allows the investor to earn market-linked returns. This plan also offers tax benefits of up to Rs. 1.5 lakh under Section 80C.

5.Public Provident Fund (PPF): 

 Public Provident Fund (PPF) is seen as one of the best long-term investment choices for those searching for guaranteed returns. It is a government-backed program and there is nominal risk to the primary amount invested.

To make the most of the tax benefits, you should investigate investment options for tax saving and allocate funds accordingly. When considering the implications of investing, consider adding term plans and health insurance policies to your portfolio to protect your family.

How to Start Investing?

If you want to learn how to invest or where to begin, there are many different ways to go about it. A few tips for getting started with investing are as follows:

  • Do research before investing:

Research the vehicles and instruments being considered and don't rely solely on third-party advice. Use your own judgment to make informed decisions.

  • Create a budget:

Before investing, individuals should assess their ability to save. This includes making sure they have the funds for their regular expenses and having an emergency fund. Investing can be tempting, but individuals should first make sure they can cover their daily life expenses.

  • Know liquidity limits:

Some investors may not be able to sell easily. Some investments may be blocked for a set time period and can't be sold. It's important to know if any investments can be bought or sold at any time.

  • Researching tax implications is important:

Selling an investment quickly may not be tax-beneficial due to unfavourable short-term capital gains tax rates. Investors should consider not only the product they hold but also the tax vehicle they use.

  • Assess your tolerance for risk:

Investing carries the chance of losses, so invest only the amount you are willing to part with. You can also look into ways to reduce potential losses.

  • Seek professional advice:

Financial advisors can offer guidance, share their insights on markets, and provide access to online investing platforms.

Investments and Risk

Generally, higher risk accompanies greater potential rewards. Conversely, a more secure investment may not offer the same degree of return. When making investment decisions, investors must consider their own risk appetite. Some may be willing to take on greater risk in order to possibly reap higher returns. Conversely, risk-averse investors may prefer to stay with the safety of conservative investments that will steadily (but slowly) grow. Investment choices and risk tolerance often correlate with life circumstances.

As someone nears retirement, they may seek out safer investments as they no longer have the security of income. In contrast, a younger person may be more amenable to riskier investments as they have a longer time to recoup any losses.

The Difference Between Savings and Investment

Investing and saving are two different aspects of financial planning. The following are some key differences between the two:

a) Savings

This is the money you reserve from your income for a particular purpose, like acquiring a vehicle, travelling, being financially prepared for an unexpected event, and more. The risk connected to savings is negligible. However, savings do not provide any noteworthy increase of money.

b) Investment

Investing your money wisely can increase its value and provide you with returns. Your financial objectives, such as purchasing a house or paying for your child's education, can be achieved through investments. However, it is important to note that investments carry an element of risk that may differ from one investment product to another.

Why Should You Invest in Investment Plans?

Investment plans can offer you high returns over time to build wealth and cater for your long-term objectives. Having a good savings plan is important, but it is not enough to guarantee a secure financial future. Investing your money can help keep up with inflation and increase your wealth over time. For example, something that costs Rs 10 today may be worth Rs 50 five years from now. Therefore, merely saving your money is not enough. You need to invest it to ensure that your funds grow with time. Investing in the right plans can offer you strong returns over time to create wealth and achieve your long-term goals.

Objectives of Investment

Before investing, it’s important to understand why you are investing. While everyone’s individual objectives may differ, the overall goals of investing money may include building wealth, saving for retirement, or creating a financial cushion.

Here are some reasons why you should invest:

1.To maintain financial security:

Ensuring that your money does not erode over time is a key goal when investing. Instruments such as fixed deposits, government bonds, and savings accounts are all suitable for this purpose. They may not offer the highest returns, but they guarantee that your capital remains secure.

2.To accumulate wealth:

Investing money is done with the goal of building a sizeable corpus over time. Capital appreciation is an important long-term goal that helps people plan for their financial future. To grow your money, you need to consider your investment objectives and options that can provide high returns. Real estate, mutual funds, commodities, and stocks are some of the best investments for growth but come with risks.

3.To receive regular returns: 

Investments can be a reliable source of income. Examples include fixed deposits and stocks of companies that regularly distribute dividends. These investments can help cover everyday expenses in retirement, as well as provide supplementary income during working years.

4.To minimise tax liability: 

In addition to capital growth or preservation, investors may have other reasons for investing. The Income Tax Act, 1961 provides tax exemption to those who invest in options such as Unit Linked Insurance Plans (ULIPs), Public Provident Fund (PPF), and Equity Linked Savings Schemes (ELSS). This type of investment can be deducted from one's total income, resulting in a lower taxable income and a lower tax liability.

5.To prepare for retirement:

Preparing for retirement is essential. Having a sufficient retirement fund is important to ensure financial security during your later years, as you may not be able to continue working forever. Investing your income wisely can help your funds grow, giving you a comfortable retirement.

6.To achieve your financial objectives:

Investing can be an effective way to reach your short-term and long-term financial objectives without too much effort or strain. Some investments, such as those with a short lock-in period and high liquidity, can be ideal instruments to store your funds in if you want to save up for near-term goals like financing home renovations or setting up an emergency fund. Meanwhile, investments with a longer lock-in period can be great for saving up for long-term objectives.

Categories of Investments

1.Investing in ownership: 

Ownership investments, as the name implies, involve purchasing and possessing assets. Examples of this type of investment include stocks, real estate, bullion, and business funding. 

2.An investment in lending: 

Savings accounts, corporate bonds, and government bonds are all types of lending investments. When you invest in these instruments, you are essentially acting like a bank. You are essentially loaning money to the bank, which is then used to fund loans for its customers. Lending investments are a great way to earn a passive income stream.

3.Cash equivalents:

These are investments that are very liquid and can quickly be exchanged for cash. Money market securities, for instance, are ideal examples of cash equivalents. Cash equivalents usually provide low yields, however, correspondingly, the risk related to them is also insignificant.

Factors to Consider Before Investing

To make sure you are investing in the best option to meet your financial goals, here are a few steps to help you choose the right investment:

Establishing your Investment Objectives:

Everyone's financial journey is distinct, and thus everyone's investment objectives are unique. The initial step you can take is to establish your investment objectives. Doing this will assist you with the following: 

  • What will your future financial needs be?
  • What is the maximum amount you can invest right now?
  • "What is the duration of your investment?"

Selecting the best investment option:

Once you have determined your financial goals, choose the appropriate investment option. Your selection should be based on the timeline of the particular event or milestone in life. For instance, if you want to purchase a car in three years, you can put your money into a debt mutual fund to reach your objective. On the other hand, if you plan to buy a house in ten years, investing in equity funds and stocks would be more suitable.

Save on taxes with long-term investment options:

  • You can reduce your taxable income by investing in PPFs and ULIPs.
  • If you hold equity mutual funds, gold ETFs, and debt mutual funds long enough, you will enjoy indexation benefits on capital gains.

Ensure your family's important goals:

Family goals such as a child's education and marriage cannot be left to chance. For this reason, you should choose investment options that offer growth as well as protection.

  • The ULIP is an investment option that covers life insurance and offers diversified investment options.
  • Investing in Guaranteed Return Plans is a safe long-term investment that offers guaranteed returns.

Why are investments important?

You may be asking why it is important to understand the concept of investment when you could focus on saving more of your income. Saving a part of your earnings each month will build up a reserve fund, but it may not be enough to cover your family in the event of a medical emergency. Knowing 'what is investment' will lead to an understanding of how investing your money can generate wealth and help you reach life goals.


Now that you understand the meaning of investment, and the various plans and benefits, start investing early for maximum returns. Select the right plans, monitor your portfolio, and watch your money grow. However, it is important to note that market-linked investment plans carry a risk of loss due to market volatility. Therefore, it is best to consult a financial advisor before investing.

FAQs about Investment

Q. What do you mean by investment?

A.Investing is the acquisition of an asset to build wealth and save money from earned income or appreciation. The primary purpose of investing is to obtain an additional source of income or gain profit from the investment over a certain period of time.

Q. What are 3 types of investments?

A.Investment choices can be divided into three main categories - ownership, loans, and cash equivalents. These products are purchased in the hope of gaining returns, either through income, profits, or both.

Q. Why is choosing Investment Asset Important?

A.A few primary investment objectives are:

  • Keeping funds safe and secure
  • Increasing your funds exponentially
  • Earning a steady and additional income
  • Reducing income tax burdens
  • Planning for retirement
  • Achieving financial goals

Q. How do I start investing?

A.In order to be successful in investing in India, it is important to consider the following four key points:

  • Identify your financial goals
  • Diversify your investments
  • Check duration of the investment
  • Periodic reassessment

Q. Why invest when you can save money with zero risk?

A.The growth of your money is dependent on the level of risk you are willing to take when investing. Saving can be hindered by two risks, the lack of growth and the decrease in value of money due to inflation and taxes. Additionally, people often end up spending the money they have available. Therefore, investing can help safeguard your savings from inflation and prevent you from making unnecessary purchases. 

ARN - ED/12/23/6950

Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Author Profile Written By:
Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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