Organizations have to carry out their business activities in a very dynamic and complex environment. At the same time, the opportunities available for investments are numerous and wide. Placing excess funds available with individuals and organizations in various instruments with the intention of earning income can be defined as an investment. One mode of classifying the investments is the tenure of the investment. Therefore,
investments can be categorized as follows considering the tenure or maturity.
- Short term investments
- Long term investments
Short term investments are the investments with maturity period less than one year.
Other investments that have a maturity period of more than one year are categorized as long term investments.
Another method of classifying investments is the legal form of investments. Accordingly,investments can be categorized considering its legal form as follows.
- Formal investments
- Informal investments
In the following sections, we will be focusing more on the formal methods of
investments. This does not mean that informal types of investments are not popular among investors. Investment methods that do not have an acceptable legal basis can be grouped as informal methods of investments. Investing in Seettu, deposits made at different places expecting higher interest rates are few examples of informal types of investments. The absence of legal acceptance and the potential risk of defaulting are the key factors to be considered before deciding in investing in informal methods of investments.
In contrast, the formal methods of investments are carried out by organizations with acceptable legal basis and are effectively monitored by another Government regulatory body.
At present, investors tend to make investments in the formal methods of investments
due to following reasons.
- Acceptable legal basis
- Low risk of default the capital deposited
- Low risk of default the interest due
- Other non-financial benefits
Varoius avenues of investment
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