“Investment”, why
investment is needed? Who needs investment? What purpose this investment
serves? Who are the people benefits through investment? Why do governments
support investment? Did you thought about this? Don’t
know answers for these questions? Then read this ….
Investment is
needed for companies/ institutions /corporations for developing their
businesses. For example, ‘A’ starts a retail store called ‘X’ in a small town
and does business for three years successfully generating good profits hence
wants to expand his business in other main cities of the country
also. But, for that huge amount of moneys is needed. For example, assume money
needed to expand retail store in other cities is Rs 50 crore. For getting that
money, Company X may various options like, borrowing from relatives, friends,
banks etc.
Borrowing from
banks will not proof beneficial, since X needs to pay interest for borrowed
money, which will eat out the profit of the company or even it can results in
negative cash flow(due to Interest payment), if company goes into losses in
initial phases of expansion. Hence, borrowing from banks cannot be a better
option.
As far the option
available of borrowing from relatives & friends is concerned, it may be not
possible to borrow huge sum.
In this situation,
the X Company can seek help of Investment Concept (here, Share Market). Here,
the company approaches Sebi, the capital market regulator of India(which
regulates share markets like RBI does with banks), with track record report of
successful business and future plans for expansion in order to approach public
to generate required sum through(share market) Initial Public Offer. IPO
involves issuing/selling shares of the company to the public for their money.
Sebi, after scrutinising the company’s record, approves the company to go on
with IPO. Then people invest their money in the Company X, and in return people
who invest in it get shares in proportion to the amount invested. By this way,
company raises precious capital that too without paying any Interest.
When a company
expands through this investment, it creates more employment, which in turn
increase productions and generate more wealth for its shareholders. When
company generates more wealth, then government will begins to get more taxes
from company. When government stands to gain, then whole country stands to
gain, since government would have surplus to allocate more funds to creating
better infrastructure for its people.
Other means of
investment instruments available through which companies able to generate
capital for doing their business or expanding their business are: Fixed
Deposits, Bonds, Debentures, Corporate Deposits etc.
I hope, by reading
this article, you got answer for "why do we invest?" who
are the beneficiaries, why Govt supports Investment?
Note: Main purpose of this article is to
make understand individuals about the importance of Investment for the country
as a whole. Please note, it does not mean you have to invest in particular
instrument only keeping this in your mind. After all, everybody have different
level of risk taking abilities & hence needs to invest accordingly, that
too analysing what are the pros & cons of particular investment avenues.
