Financial investments and their features
Financial investment is the investment of money in securities of various issuers. This is a form of disposal of temporarily free capital of an enterprise, which has its own classification and other unique features.
Key features of financial investments
Acting as an active form of effective distribution of free capital of the organization, financial investments have the following features:
- are carried out at the later stages of the development of an enterprise that has already satisfied its needs for real investments;
- may take place in the country or abroad;
- represent an independent type of economic activity, allowing to solve strategic problems by investing in authorized funds and controlling stakes in various enterprises;
- contribute to a fairly quick and cost-effective implementation of specific strategic goals for the development of the enterprise;
- allow to direct funds to various sectors of the economy, forming a conservative or aggressive investment policy;
- require less time to implement management decisions compared to real projects and investments.
Classification of financial investments
The corresponding type of financial investments is classified:
- According to the forms of ownership of financial resources.
- By the nature of participation in investment.
- According to the investment period.
- On a regional basis.
Depending on the form of ownership, there are public and private financial investments. The first of them are investments made by public authorities and administration with the attraction of funds from budgetary and non-budgetary funds, credit organizations, state enterprises and institutions at the expense of their own and borrowed funds.
Financial investments of a private nature are made by citizens, business associations, various non-state enterprises, societies and unions, as well as legal entities acting on the rights of collective ownership. In addition, there are foreign financial investments received from foreign citizens and organizations, as well as joint investments, which are investments from several civil or legal entities.
According to the nature of participation in the investment process, direct and portfolio investments are distinguished. The first are business transactions with the contribution of funds or property to the authorized capital of the organization in exchange for the corporate rights it has issued. The latter are business transactions for the acquisition of derivatives, securities and other financial assets in the stock market.
Depending on the investment period, there are short-term and long-term financial instruments. Short-term investments provide for investments for a period not exceeding one year. This may include the purchase of short-term savings certificates, bills of exchange, government securities, etc. All this refers to money market assets and is intended to use temporarily free financial resources in order to quickly generate income. As for long-term investments, they consist in the purchase of a share of the authorized capital of other organizations, including shares, interest-bearing bonds. This also includes obtaining financial loans and credits for a period exceeding one year.
On a regional basis, one can single out financial investments made within the state and abroad. The first of them, also called domestic investment, is an investment in those investment objects that are located on the territory of the state. Foreign financial investments are investments in investment objects located outside the country, including the acquisition of shares, bonds and various other financial instruments of foreign companies and states.