Investment refers to the creation of new capital. Money is used or invested in a business to create new capital. This invested money is called investment. Investment in macroeconomics refers to the aggregate of private investment as well as public investment. In this post you also learn, What is Managed Investment Trust?
So, “Investment refers to increasing the capital stock with existing capital,” said economist Robinson.
Economist Hicks says, “Increasing capital goods or creating new equipment is called investment.”
Therefore, the additional capital that is added to the existing capital in a country at a given time is called investment.
Example: Suppose a country has a capital stock of $1,50,00,000 in the month of December 2022. In the month of December 2023, it increased to $2,00,00,000. In this case, the investment amount in 2023 is $2,00,00,000 – $1,50,00,000 = $50,00,000.
Types of Investments:
Investment has two categories. namely-
1) Spontaneous investment
Investments that do not change with changes in income are called passive investments. Auto investment remains the same even at zero income. Self-investment is not dependent on income.
2) Induced investment
The change in investment that occurs with a change in income is called induced investment. If the income is zero, this investment is zero.
Determinants of Investment:
Factors that influence investment are known as determinants of investment. Such as:
Investments are influenced by income. If income increases, aggregate demand increases, product prices increase, and profits increase as a result investment increases.
2) Rate of interest:
Investment is negatively correlated with interest rates. As interest rates rise, investment falls. Again, lower interest rates increase investment.
3) Marginal efficiency of capital:
The expected return on cost from using an additional unit of capital is called the marginal efficiency of capital. If the marginal efficiency of capital is greater than the rate of interest, investment increases, while if the marginal efficiency of capital is less than the rate of interest, investment decreases.
If the profit in production increases, the amount of investment increases and if the profit decreases, investment decreases.
5) State policy:
Investments are varied by various government policies, especially demand and fiscal stimulus, tax holidays, subsidies, credit facilities, etc.
6) Cost of capital goods:
If the cost of capital goods is high, the profit is low, so the investment is also low. Cost reduction increases profits. As a result investment increases.
An increase in the propensity to consume leads to an increase in aggregate demand. In this case, the investment will also increase.
8) Infrastructural condition:
Improved economic and social infrastructure such as roads, transport, and communication systems attract investors to invest more.
Efficient and energetic entrepreneur management reduces the cost of production. As a result investment increases.
10) Social and political conditions:
Social and political stability increases investment. On the other hand, an unstable social and political environment reduces investment.
A country’s investment is influenced by capital stock, population, production techniques, development programs, etc.
What is Managed Investment trust?
A managed investment trust (MIT) is a type of investment vehicle that pools together money from multiple investors and uses that money to invest in a variety of assets, such as stocks, bonds, and real estate. The trust is managed by a professional investment manager, who is responsible for making investment decisions and overseeing the trust’s assets.
Investors in a managed investment trust have the benefit of professional management and the potential for diversification of their investments, as the trust can invest in a wide range of assets. Managed investment trusts can offer different types of investment options, such as growth or income, and can be suitable for a variety of investment goals and risk tolerances.
It’s important to note that managed investment trusts are subject to investment risks, and the value of the trust’s assets may fluctuate over time. As with any investment, it’s important to carefully consider your personal financial situation and risk tolerance before deciding whether a managed investment trust is right for you.