Capital investments are very crucial to measure the health of the company. When business is making capital investments, it implies that they are self-reliant and assertive about the prospects and expect to expand their business. However, on the contrary, recessions are typically inter-related with reductions in capital budgeting and investments.
Even startups and growing companies can be capital intensive. It is a hard and fast rule that whatever companies survive in this universe cannot function without substantial investment. However before enrolling or digging deep into capital investments, you need to know all about the basics, types of investments and the pros and cons associated with capital investments.
Capital Investments- A Complete Overview
Capital Investment is generally described as the money invested in a business venture with a confidence of getting a return generated by the business efficiency and productivity. In a nutshell, the amount of money sponsored to a business for furthering its objectives or operations. Although there are different types of investments, let us look at the basic types of investment
- They are a popular choice of investors who wish to acquire a steady income after their retirement period. This is usually a contract between the individual and the insurance company in which the investor gets a lump sum payment or a series of payment after a certain period of time. The main objective of this type of investment is ultimately getting a steady stream of funds after retirement.
- Bonds are typically used by companies, municipalities, governments to finance projects and operations. In fact, bonds are often regarded as a good investment, in fact the Treasury bond is believed to earn good revenue for retirement. It offers low risk tolerances and generates a good piece of income. When you know how to handle risks involved with bonds then you can double your money. Some of the common risks associated with bonds are
- Interest rate Risk- The change in the interest rates might increase or decrease the market value of the bond which the individual is owning.
- Market Risk-Generally market risks are higher when you hold the bond for a longer period of time. There are instances where you need to sell the bond less than the money you have paid.
- Credit risk- Most corporate bonds are not secured by collateral and they are often referred to as debentures. The credit risk evolves from both the investor side as well as the insurance company when they failed to make their payments to their opponents.
Exchange Traded Fund-
- It is marketable security that tracks a stock index, a commodity, bonds, or a basket of assets. Their characteristic resemble much like mutual funds because of both these type of investment trade stock in an exchange. ETF can provide reduced operating prices than the conventional mutual funds, flexible trading, increased transparency, and great tax efficiency in taxable accounts. So, since it was introduced in 1993, exchange-traded funds (ETFs) have surged in popularity with investors who were looking for alternatives to mutual funds.
Guaranteed Investment Certificate-
- Guaranteed investment certificate often referred to as GIC provides a reliable rate of return over a fixed period of time, and they are typically funded by trust companies or banks. It is regarded as one of the best investment vehicle offering a plethora of benefits. Some of its notable benefits are low-risk investment with a guaranteed amount of return on the amount you have invested. For instance, when you deposit 500$ you are sure to get your 500$ back. However when you are investing in a stock market there are possibilities that either you can get higher than the money invested or way lesser. Apparently, with GIC, you ll have a guaranteed return and there is absolutely no risk involved.
- Rather than investing in stocks and managing money, mutual funds are fairly good choices. Since all the mutual funds are not created in the same passion, you need to have some knowledge before investment to avoid risk factors and to be aware how much money can you make out of this investment. However, mutual investments are regarded as the greatest investment tool for millions of people without the need to master finance. Most of these funds are redeemable, you can sell your funds at the NAV less of redemption charges. Some of the common types of mutual funds are
- Money market funds
- Fixed income funds
- Equity funds
- Balance funds
- Index funds
The level of risks purely depends on what the individual has invested on.
To Sum It Up
Capital Investment subject is like an ocean, there are plenty of things you need to understand and get familiarized with, especially the risks involved with each and every investment and the returns obtained.