A financial investment is an asset that you put money into with the hope that it will grow or appreciate into a larger sum of money. The idea is that you can later sell it at a higher price or earn money on it while you own it. You may be looking to grow something over the next one year (saving up for a car) or over the next thirty years (saving for retirement).
Need for Financial Investment :Financial Investment ensures all your dreams turn real and you enjoy life to the fullest without actually worrying about the future.Financial investment ensures you save for rainy days. Careful investment makes your future secure.Financial investment controls an individual’s spending pattern. It decides how and what amount one should spend so that he has sufficient money for future.
Examples of Risks in Investment ::
1) Interest Rate Risk-Interest rate risk is the possibility that a fixed-rate debt instrument will decline in value as a result of a rise in interest rates.
2) Business Risk- Business risk refers to the possibility that the issuer of a stock or a bond may go bankrupt or be unable to pay the interest or principal .
3) Credit Risk-This refers to the possibility that a particular bond issuer will not be able to make expected interest rate payments and/or principal repayment.
4) Taxability Risk-This refers to the risk that a security that was issued with tax-exempt status could potentially lose that status prior to maturity.