1 . General characteristic of financial investments
Concept and types of financial investments
The concept an investment occurred from Latin “investire” to dress. During a feudalism era input of the vassal in possession of the feud was called as investiture. The same word designated appointment of the bishops receiving thus in management church lands with their population and the right vessels over them. Introduction in a position was accompanied by the corresponding ceremony of vestments and investment with powers. The investiture gave the chance to an investor (or, speaking to the modern language, to the investor) not only to attach to itself new territories for receiving access to their resources, but also to participate in management of these territories through the protégés invested with authority for the purpose of planting of the ideology. The last, on the one hand, justified intensive operation of the population of territories and allowed to increase income gained from these territories, and on the other hand, acted as a developing factor.
Financial investments is a purchase by subjects of managing and individuals of securities of various issuers. In this case the capital inflow to business occurs through investment of means in securities. Financial investments are considered as an active form of effective use of temporarily disposable capital or as the instrument of implementation of the strategic objectives connected with diversification of operating activity of the entity.
Classification of financial investments.
Investments are understood as money, target bank deposits, shares, actions and other securities, technologies, cars, the equipment, licenses, including on trademarks, the credits, any other property or property rights, the intellectual values put in objects of enterprise and other kinds of activity for receiving profit (income) and achievement of positive social effect. And under investment activity, according to the law, began to understand any form of capital investments.
Classification of investments concerning object of the appendix, nature of use and time factor.
Concerning object of the appendix: investments into property (material investments). As material investments understand investments which directly participate in production (for example, investments into the equipment, buildings, stocks of materials).
Financial investments — investments in financial property, acquisition of the rights for participation in affairs of other firms and the business rights (for example, acquisition of actions, other securities).
Non-material investments — investments into non-material values (for example, investments into training, researches and development, advertising, etc.).
It is represented that all investments concerning object of the appendix (namely this criterion is most interesting) can be divided into two look: portfolio and real, where:
Figure-1 . Types of financial investment
Note – Done by author based on [1]
The portfolio — investments in securities for the purpose of the subsequent game on a change of course and (or) obtaining the dividend, and also participation in management of the managing subject.
Formation of a portfolio happens by acquisition of securities and other assets. Portfolio - set of the aggregated various investment values serving as the tool for achievement of the specific investment goal of the investor. The portfolio can include securities of one type (action) or various investment values (actions, bonds, savings and deposit certificates, mortgage certificates, insurance policies, etc.).
Direct (real) investments - investments - investments of private firm or the state in production of any production.
Real investments consist of two various components. The first of them are investments into fixed capital, that is acquisition of again made capital benefits, such as the production equipment, computers and buildings of production appointment. The second component - investments into inventory holdings (working capital) which represent accumulation of stocks of the raw materials which is subject to use in production, or unrealized final goods. Commercial inventory holdings are considered as a component of the total value of stocks of the capital in economic system; they are so necessary, as well as the capital in the form of the equipment, buildings of production appointment.
Also real investments can be divided on internal and external:
the internal — this investment of capital of the managing subject in own factors of production at the expense of own sources of financing;
the external — this investment of capital of investment institutes in factors of the production needing investments of the managing subject.
It makes sense to refer to real investments also concepts gross and pure investments. Actually pure investments it is gross investments minus costs for compensation of fixed capital.
On nature of use:
primary investments, or net - the investments which are carried out at the basis or upon purchase of the enterprise; investments on expansion (extensive investments), directed on expansion of production potential;
reinvestments, i.e. use of the free income gained as a result of implementation of the investment project, by their direction on acquisition or preparation of new means of production for the purpose of maintenance of structure of fixed assets of the enterprise;
investments on replacement as a result of which the available equipment is replaced with the new;
investments on the rationalization, directed on modernization of processing equipment or technological processes;
investments on change of the program of output;
investments on the diversification, the listed products connected with change, creation of new types of production and the organization of new sales markets;
investments at providing a survival of the enterprise in the long term, aimed at research and development, training, advertising, environmental protection;
gross - the investments consisting from net - investments and reinvestments.
Risk investments, or the venture capital - investments in the form of issue of the new stocks, made in the new fields of activity connected with big risk. Venture capital is invested in untied among themselves projects counting on fast payback of invested funds. Such capital investments are, as a rule, carried out by acquisition of part of actions of the enterprise client or providing loans to it, including with the right of conversion of the last in an action. Risk capital investments are caused by need of financing of small innovative firms for areas of new technologies. The risk capital combines various appendix forms of the capital: loan, joint-stock, enterprise. It mediates in a founder of starting knowledge-intensive firms.
On time factor:
Short-term : investments are assets which the enterprise owns for the purpose of generation of profit through income distribution as, for example, interest income or dividends on investments. Short-term investments also call temporary investments; they can consist of securities or other investments which estimated maturity date makes less than one year.
Long-term investments : as a rule, consist of securities of other companies acquired for the purpose of providing a constant source of the income for the investor for more than one year. The section of long-term investments in balance doesn't join the securities acquired for short-term operations because the established period of repayment makes them the period less than one. Real long-term investments are financial investments in business, i.e. in fixed assets, buildings, constructions, the equipment, the earth, etc.
Annuity : the investments which are bringing in to the investor the certain income through regular periods. Generally it investments of capital in pension and insurance funds. Insurance companies and pension funds issue debts which their owners want to use on a covering of contingencies in the future.
Financial investment is carried out by the enterprise in the following main forms (Figure 2).
Figure- 2.The main forms of financial investment
Note – Done by author based on [2]
1 . Capital investments in authorized capitals of joint ventures. This form of financial investment has the most close connection with operating activities of the enterprise. It provides consolidation of strategic economic communications with suppliers of raw materials and materials (with participation in their authorized capital); development of the production infrastructure (at capital investments in transport and other similar enterprises); expansion of opportunities of sale of production or penetration on other regional markets (by capital investments in authorized capitals of trade enterprises); various forms of branch and commodity diversification of operating activities and other strategic directions of development of the enterprise. According to the contents this form of financial investment in many respects substitutes real investment, being thus less capital-intensive and quicker. The priority purpose of this form of investment is not so much receiving high investment profit (though minimum its necessary level has to be provided), how many establishment of forms of financial influence on the enterprises for ensuring stable formation of the operating profit.
2 . Capital investments in profitable types of monetary instruments. This form of financial investment is directed first of all on effective use of temporarily free monetary assets of the enterprise. Main type of monetary instruments of investment is the deposit contribution in commercial banks. As a rule, this form is used for short-term investment of the capital and its main goal is generation of investment profit.
3. Capital investments in profitable types of share tools. This form of financial investments is the most mass and perspective. It is characterized by capital investments in different types of the securities which are freely traded on the stock market (so-called "market securities"). Use of this form of financial investment is connected with a wide choice of alternative investment decisions both on instruments of investment, and on its terms; higher level of state regulation and security of investments; the developed infrastructure of stock market; existence of quickly provided information on a state and environment of stock market in a section of its separate segments and other factors. Main objective of this form of financial investment also is generation of investment profit though in some cases it can be used for establishment of forms of financial influence on the separate companies at the solution of strategic tasks (by acquisition of the control or sufficient powerful equity stake).