What is Investment? Investment Meaning, Types, Objectives

Written by : Knowledge Center Team

2025-12-15

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The meaning of investment is putting your money into an asset that can grow in value, produce income, or both. For example, you can buy equity stock of a listed company in the hopes of receiving regular dividends and capital appreciation in the form of the share price.

Your savings become investments when they are put into assets that carry investment risk or a limited degree of liquidity. Such investments help you create wealth that can be used as an emergency fund, a retirement corpus, for buying a house, funding a child's education, etc. The role of investment in financial management is crucial. The information provided above answers what investment is from a definition point of view. To understand it better, let us move ahead with the process and objectives of investment, its types, and the factors that affect it.

Key Takeaways

Investments can be grouped into ownership equity (high risk), lending (moderate risk), and money market participation (low risk).
Investments with higher returns often have lower liquidity and require a longer investment horizon. Balancing these elements is key to meeting financial goals.
Investment options like ULIPs, ELSS, and PPF provide tax-saving benefits under Section 80C that reduce overall tax liability.
A well-diversified portfolio should include a mix of low, medium, and high-risk investments to manage risks while optimising returns.
Consulting a financial advisor helps identify risk appetite, select appropriate investments, and build a strategy that aligns with your goals.

What are the Objectives of Investment

To understand the meaning of investment, we must first understand its objectives. The need for investment grows as you move ahead in life. Growing responsibilities will demand an increase in investment. The primary objectives of investment are listed below:

Safeguard Your Money: Investing keeps your money safe from immediate and unnecessary expenditures. It also helps you keep your money safe from inflation, which erodes the value of your money. Investing money in an interest-earning asset will help you automatically keep up with inflation.
Grow Your Savings: Investment is a great way to grow your money. Through disciplined investment management, your funds begin earning interest, and when that interest remains invested, it starts generating additional returns through compounding.
Build Funds for Emergencies: Life is usually a series of ups and downs. Sometimes, you earn decent money and save, while other times, you need a large sum for an emergency. Building investment pools helps you on such challenging days. In fact, this is one of the essential objectives of investment and its strategic management.
Secures Your Retired Life: Retired life is when life slows down, and there are no more work-related worries or deadlines that you have to meet. This phase of life is characterised by living off earnings from investments and savings. Once you have built a retirement corpus by leveraging different types of investment strategies, you can experience true financial independence, allowing you to enjoy your time comfortably without worrying about day-to-day expenses.
Save Tax: Investment in tax-saving instruments like life insurance plans, ULIPs, PPF, NPS, etc, allows you to claim deductions on your taxable income. Thus, investing in specific assets can help you reduce your tax liability. Many of these investments also help you reduce your future tax with tax-free maturity values.
Fund Bigger Life Goals: Your monthly income may not be enough to purchase your next car or build a house for your family. However, if the nature of your investment is well-planned and consistent, your money can gradually grow into the amount you need to achieve your dreams.

Different Categories of Investments

Depending on the asset class you choose, each investment carries its own level of risk and potential return. Accordingly, investments can be grouped into the following categories:

Owner's Equity: These are some of the high-risk investments, as you are directly holding the ownership stake. Owners only earn after paying all the expenses and liabilities. An ownership stake makes you a party to the company’s profits and losses.
Lending: Lending is considered safer than equity ownership, as you secure an obligation from the borrower to pay interest. Thus, you hold the first right to the money over the owners. However, the rate of return will also be lower.
Money Market Participation: Money market investments are short-term debt obligations that can last up to 365 days or less. Examples include T-bills, Commercial Papers, etc. Even though these investments will help you earn substantially, they are still considered safe.

Common Investment Options in India

Among the many investment options, you should shortlist the best ones as per your needs. At a broader level, investments are of two types, which are equity and debt.

Equity primarily invests in shares of companies in different ways. Debt is where your money is invested in money market instruments. Understanding the types of investment is crucial to understanding what investment is.

The table lists different types of investment options in India:

Investment Type	Description	Risk	Reward
Stocks	Stocks represent your ownership share in the company. Stocks will provide returns on investment through changes in share price, or dividends. It can be highly volatile and is considered one of the riskiest investments.	High	High
Bonds	Bonds are an instrument of borrowing. Bondholders have the first right to the assets of the company. Thus, these are considered safer than equity stocks. Also, a bondholder’s return on investment will be more stable than a stockholder's as bonds can have fixed coupon rates.	Low	Low
Mutual Funds	Mutual funds are pooled assets that are professionally managed. It can pool money from thousands of small investors and create a portfolio of up to 30 securities to generate a return on the pooled money. Mutual funds allow investors to invest a small amount regularly and choose their asset portfolio as per their risk profile.	Medium	Medium
Unit Linked Insurance Plans	ULIPs are life insurance plans that allow you to invest in diversified funds as per your risk profile. You will get market-linked returns and tax-saving benefits on your investments. Life cover will be available regardless of the performance of the invested sum.	As per your portfolio	High
Gold	Investing in physical gold could be expensive, risky, and fraught with storage issues. Thus, you can use an electronic form of gold investment. Gold ETFs and Gold Bonds are some of the popular ways of investing in gold and keeping up with its price.	Medium	Medium
Public Provident Fund (PPF)	It is a scheme that offers a good rate of return and a sovereign guarantee. With PPF you can beat inflation, and build substantial wealth, that too completely tax-free. PPF also allows adequate liquidity. Thus, this investment helps you build a safety fund for your family. The account is extendable after 15 years of maturity. So, you can use it to save for your retirement and draw a tax-free pension after 60.	Low	Low

Why is Your Choice of Investment Asset Important?

Your investment instrument determines how quickly your money grows, how easily you can access it, and how securely it accumulates over time. A suitable asset aligns with your goals and comfort level. Selecting an investment option needs a balance between the following three factors:

Liquidity
Risk or Volatility-Return
Investment Tenure

Usually, risk and return are directly proportional, while liquidity and return tend to be inversely proportional. Higher-risk investments often come with lower liquidity and require a longer investment tenure.

For example, if you are only saving money and not investing it further, the liquidity is high, the investment risk is zero, and there is no investment tenure.

All the assets and investment options offer a different trade-off between these factors:

Investment Option	Liquidity	Risk-Return	Ideal Investment Term
Savings Account	Equal to Cash	Almost Nil	Up to 1 year
Fixed Deposit	Lower than Savings	Higher than Savings	7 days to 10 years
Gold	High	Medium	years and about
Equity Stocks	High	Very High	3 to 15 years
Equity Mutual Funds	Medium to High	High	3 to 5 years
ULIPs	Low	Medium to High	5 to 81 years
Public Provident Fund (PPF)	Low	Low (but tax-free)	15 years+
Real Estate	Very Low	Medium	10 years+

While investing, you should always optimise the investment horizon. Your chances of receiving better returns will be higher if you stay invested for a long time with high-risk investments. However, you also need less risky and more liquid investments to fulfil your short and medium-term needs.

Before investing in an asset, you must understand the risk-reward equation and liquidity.

Did You Know?

Exemption benefits under Section 80C aren’t applicable under the new tax regime

Source: incometax

Factors to Consider Before Investing

Now that you understand the basics of the investment process, you must also learn to choose the best investment option as per your financial goals. Listed below are a few steps to help you find the best investment option as per your life goals:

Define your Investment Goals: Every financial journey is different. Hence, everyone's investment goals are different, too. The first thing you can do is define them. Finding answers to the following questions will help you do so easily:
1. How much money do you need in the future?
2. How much can you invest now?
3. How long do you need to invest?
Choose Investment Options as per Goals: Once your goals are defined, select the investment option that best suits your needs. Your choice will depend mostly on the time available for a particular milestone or event in life.

For example, if you want to buy a car after 3 years, you can invest your savings in a debt mutual fund and achieve your goal. Likewise, if you wish to buy a house after 10 years, you can invest in equity funds and stocks for high liquidity when needed.
Ensure Higher Tax Savings: Long-term investment options can also help you save on tax. Investments like PPF and ULIPs help you reduce your taxable income when you invest in them. Equity mutual funds, gold ETFs, and debt mutual funds enjoy indexation benefits on capital gains if you hold them long enough.
Financial Backup for Important Family Goals: Certain family goals, like a child’s higher education or marriage, cannot be left to chance. Therefore, you should choose investment options that offer good growth and protection for the goal.

For example, investment options like ULIPs offer life insurance cover and diversified investment options. There are also Guaranteed Return Plans that are safe, long-term investments that offer assured returns on the investments.

Investment is essential to grow your money and create wealth. It will help you achieve your life goals. There are many investment options available in India, and you must understand the purpose, risk, and reward associated with them.

You should select an option according to your investment goals and needs.

The Difference Between Savings and Investment

Understanding the distinction between savings and investment is crucial when planning your financial future. Both play significant roles, but they serve different purposes. Here are the key differences:

Savings:

Savings refer to the money you set aside regularly for short-term or emergency needs. Typically, this money is kept in secure and easily accessible accounts, such as savings accounts or fixed deposits. The primary goal of savings is to ensure safety and liquidity rather than generating significant returns. The key features of savings include:

Low Risk: Savings are generally risk-free since they are kept in secure financial instruments
High Liquidity: You can access your savings easily whenever required
Limited Growth: While your savings are safe, they may earn minimal interest, meaning your wealth may not grow significantly over time

Investment:

Investment refers to allocating your money to assets that can grow over time. These assets may include stocks, bonds, mutual funds, or real estate. Unlike savings, investments carry a certain level of risk but offer the potential for higher returns. The following are the essential characteristics of investments:

Potential for Higher Returns: Investments are designed to grow your wealth, often outpacing inflation
Risk Factor: Unlike savings, investments may fluctuate in value based on market conditions
Long-Term Focus: Most investments are ideal for meeting future financial goals, such as retirement, education, or wealth creation

Key Differences at a Glance:

It can be confusing to decide whether to save or invest your money, especially when both serve important but different purposes. A quick comparison helps you understand how each option works and when it is best suited for your financial needs. The table below highlights the core differences to help you make clearer, more confident money decisions:

Aspect	Savings	Investment
Purpose	Emergency or short-term needs	Wealth creation and long-term goals
Risk Level	Low or minimal risk	Varies; can be high or low based on asset type
Liquidity	High; easily accessible	Medium to low; may require time to withdraw funds
Returns	Minimal; earns basic interest	Potentially high, subject to market performance

How to Start Investing?

Now that you’re confident about beginning investing, it’s time to clear the air around how to begin your journey. While this may seem intimidating, following the proper steps can help you build a corpus for the future and make your financial game even stronger.

Follow these essential steps to begin investing wisely:

Do Your Research: Once you get a hold of what investment is, understanding the available options is crucial. Each investment type carries different levels of risk, potential returns, and liquidity. Take time to explore your options, which might include:
1. Stocks for growth potential
2. Mutual funds for diversification
3. ULIPs for market-linked growth with life cover benefits
4. Gold or real estate for stability over time
5. Term Insurance for life coverage
6. Retirement plans for an independent future

By researching each option, you can get more clarity and will be confident in building a portfolio that suits your goals and comfort level.

Create a Budget: A well-defined budget ensures you allocate funds strategically. Identify your income, expenses, and savings capacity to determine how much you can invest regularly. Creating a budget helps you:
1. Avoid overspending
2. Ensure emergency funds remain untouched
3. Prioritise long-term financial goals
Know Your Risk Appetite: Understanding your risk tolerance is key to making sound investment choices. Ask yourself:
1. Are you comfortable with short-term market fluctuations?
2. For greater rewards, can you tolerate a higher risk level?
3. Do you prefer stable returns over aggressive growth?

Your risk profile will guide your investment choices, ensuring your portfolio aligns with your comfort zone.

Research Tax Implications: The objectives of investments not only focus on putting your money in the right place but also on knowing how they impact your tax obligations. Certain investments, including ULIPs, ELSS, and PPF, offer tax-saving benefits under Section 80C of the Income Tax Act. However, any gains you earn from stocks or mutual funds could be subject to capital gains tax. By being informed about these tax implications, you can maximise your investment returns and minimise your tax liabilities.
Consult a Financial Advisor: Consulting a financial advisor can be invaluable for personalised advice. A professional can assess your position, recommend suitable investment options, and help create a strategy that aligns with your goals. Whether you're a beginner or an experienced investor, expert guidance can provide clarity and confidence in your decisions.

Types of Investments Based on Risk

As an investor, you may encounter several situations requiring risk assessment. While the objectives of investment may be clear to you, understanding these risks is crucial when investing to align your financial decisions with your life goals. They offer stable returns with minimal risk exposure and are suitable for short-term financial goals. Now, inflation may reduce actual returns over time, but combining low-risk investments with growth-focused options can be helpful.

Based on your financial position, the following are three investment options that you can choose from:

Low-risk Investments: Low-risk investments are ideal for conservative investors, retirees, or individuals prioritising capital protection. These options offer stable returns and minimal exposure to market volatility. Some of the popular low-risk investments include:
1. Fixed Deposits (FDs): Secure deposits with fixed interest rates, ideal for short-term savings
2. Public Provident Fund (PPF): A government-backed scheme with guaranteed returns, perfect for long-term wealth creation
3. National Savings Certificate (NSC): A secure savings option offering steady returns that are suitable for conservative investors
4. Government Bonds: Backed by the government, these provide low but stable returns with minimal risk
Medium-risk Investments: Medium-risk investments strike a balance between stability and growth, making them ideal for those seeking moderate returns without facing extreme market volatility. These investments are well-suited for medium-term goals such as home renovations, funding education expenses, or purchasing a vehicle.

By combining medium-risk options with low-risk assets, you can create a balanced portfolio that offers both security and growth. While these investments are not entirely immune to market fluctuations, they tend to be more stable than equity investments. They provide a safer path to achieving your financial objectives. Here are a few medium-risk investment options:
1. Balanced Mutual Funds: These funds invest in both equity and debt instruments, reducing risk while offering steady returns
2. Debt Mutual Funds: Investing primarily in fixed-income securities, they provide stability while offering better returns than low-risk options
3. ULIPs (Unit Linked Insurance Plans): ULIPs allow you to invest in diversified funds based on your risk appetite while offering life cover
High-risk Investments: High-risk investments are designed for aggressive investors aiming for substantial returns. While these options hold significant growth potential, they come with increased exposure to market volatility and often require active management. These investments are best suited for long-term financial goals such as retirement planning or wealth accumulation, where investors have the time to recover from potential short-term losses.

The following are a couple of top high-risk investment options that you may want to consider opting for:
1. Equity Stocks: Shares in publicly listed companies offer high return potential but carry market-driven risks
2. Equity Mutual Funds: Managed by professional fund managers, these funds invest heavily in stocks, aiming for long-term capital appreciation
3. Cryptocurrency: While increasingly popular, cryptocurrencies are highly volatile and should be approached cautiously

Summing Up

Investment is a crucial tool for growing wealth over time. Its primary objectives include generating returns, preserving capital, and hedging against inflation. Various types of investments cater to different risk appetites and financial goals, ranging from traditional assets like stocks and bonds to alternative options such as real estate and commodities.

Factors such as risk tolerance, time horizon, economic conditions, and market volatility significantly influence investment decisions.

By understanding the fundamentals of the investment process and objectives, you can make informed choices to build a secure financial future tailored to your needs and aspirations. Ultimately, investing is a journey towards financial empowerment and long-term prosperity.

Glossary

Retirement Corpus: The total amount of money you accumulate to support your expenses after you stop working
Maturity Value: The final amount you receive at the end of an investment term, including returns
Market Volatility: The rapid and unpredictable movement in market prices over short periods
T-bills: Short-term government securities with maturities of up to one year, issued to meet short-term funding needs
Market Fluctuations: The regular ups and downs in the prices of financial assets due to changing economic and investor conditions

Frequently Asked Questions Related to What is Investment?

Investment involves allocating money or resources into assets such as stocks, bonds, property, or businesses with the aim of earning returns in the future. The goal is to grow your wealth over time by letting your money generate income or profit, helping you meet financial goals like retirement planning or asset building.

The three main categories of investment styles are growth versus value investing, small versus large-cap enterprises, and active versus passive management.

ETFs, mutual funds, stocks, and bonds are the most popular asset classes. These are some of the asset classes that you would probably select from while making investments in a college savings plan or retirement savings plan.

Some of the fundamental objectives of investment are securing and safeguarding your money, growing it exponentially, and generating a steady and supplementary source of income.

Investing involves the following 5 steps:

Establish a target or goal for your investments
Find out your risk tolerance.
Assess the Allocation of Assets
Assembling Your Portfolio
Observe, document, and keep current

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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