INVESTMENT AND SPECULATION

1. INVESTMENT AND SPECULATION
Ramya B
Assistant Professor
B.com(PA)
Sri Ramakrishna College of Arts and Science
Coimbatore - 641 006
Tamil Nadu, India
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2. Investment Definition & Meaning
• An investment is an asset or item acquired with the goal
of generating income or appreciation. Appreciation refers
to an increase in the value of an asset over time. When
an individual purchases a good as an investment, the
intent is not to consume the good but rather to use it in
the future to create wealth.
• For example, an investor may purchase a monetary

3. Types of Investments
Economic Investments
• Within a country or a nation, economic growth is related to investments. When
companies and other entities engage in sound business investment practices, it
typically results in economic growth.
• For example, if an entity is engaged in the production of goods, it may manufacture
or acquire a new piece of equipment that allows it to produce more goods in a
shorter period of time. This would raise the total output of goods for the business.
Taken in combination with the activities of many other entities, this increase in
production could cause the nation’s gross domestic product (GDP) to rise.

4. Investment Vehicles
• An investment bank provides a variety of services to individuals and businesses, including
many services that are designed to assist individuals and businesses in the process of
increasing their wealth.
• Investment banking may also refer to a specific division of banking related to the creation of
capital for other companies, governments, and other entities. Investment banks underwrite
new debt and equity securities for all types of corporations, aid in the sale of securities, and
help to facilitate mergers and acquisitions, reorganizations, and broker trades for both
institutions and private investors. Investment banks may also provide guidance to companies
who are considering issuing shares publicly for the first time, such as with an initial public
offering (IPO).

5. SPECULATION
Definition of 'Speculation'
• Definition: Speculation involves trading a financial instrument
involving high risk, in expectation of significant returns. The motive is
to take maximum advantage from fluctuations in the market.
• Description: Speculators are prevalent in the markets where price
movements of securities are highly frequent and volatile. They play
very important roles in the markets by absorbing excess risk and
providing much needed liquidity in the market by buying and selling
when other investors don't participate.

6. Speculative Investment
• A speculative investment is one with a high degree of risk where the focus of the purchaser is
on price fluctuations. The investor buys the tradable good (financial instrument) in an attempt
to profit from market value changes.
• We call somebody who makes a speculative investment a speculator. He or she is less
concerned with the fundamental value of a security, and more on price movements. The
investor doesn’t care about the annual income the asset may bring, such as dividends or
interest payments. What matters is how much he or she can sell it for at a future date.
• Speculative investments may occur in markets for real estate, stocks, currencies, antiques,
fine art, commodity futures, and collectibles.

7. DIFFERENCE BETWEEN SPECULATION AND
INVESTMENT
BASIS FOR
COMPARISON
INVESTMENT SPECULATION
Meaning The purchase of an asset
with the hope of getting
returns is called
investment.
Speculation is an act of
conducting a risky financial
transaction, in the hope of
substantial profit.
Basis for decision Fundamental factors, i.e.
performance of the
company.
Hearsay, technical charts
and market psychology.
Time horizon Longer term Short term
Risk involved Moderate risk High risk

8. BASIS FOR
COMPARISON
INVESTMENT SPECULATION
Intent to profit Changes in value Changes in prices
Expected rate of return Modest rate of return High rate of return
Funds An investor uses his
own funds.
A speculator uses
borrowed funds.
Income Stable Uncertain and Erratic
Behavior of
participants
Conservative and
Cautious
Daring and Careless