Investment is basically defined as an item of value purchased for income generation or capital appreciation. Investment flows refer to the cash flows associated with the buying and selling of fixed assets and business interests. Investment return is the percentage change in value of the investment over a given period of time. Investment income is income from a portfolio of invested assets. Investment management, also called money management is the process of managing money, including investments, budgeting, banking and taxes. An investment horizon is the length of time a sum of money is expected to be invested. An individual’s investment horizon depends on when and how much money will be needed and the horizon influences the optimal investment strategy. In general, the shorter the investor’s horizon, the less risk he/she should be willing to accept.

An investment company is a firm that invests the pooled funds of retail investors for a fee. By aggregating the funds of a large number of small investors into a specific investment (in line with the objectives of the investors), an investment company gives individual investors access to a wider range of securities than the investors themselves would have been able to access. Also, individual investors should be able to save on trading costs since the investment company is able to gain economies of scale in operations. There are two types of investment companies: open-end (mutual funds) and closed-end (investment trusts).

A mutual fund is an open-ended fund operated by an investment company which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives. Mutual funds raise money by selling shares of the fund to the public, much like any other type of company can sell stock in itself to the public. Mutual funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds and money market instruments. In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund and, in effect, in each of its underlying securities. For most mutual funds, shareholders are free to sell their shares at any time, although the price of a share in a mutual fund will fluctuate daily, depending upon the performance of the securities held by the fund. Benefits of mutual funds include diversification and professional money management. Mutual funds offer choice, liquidity, and convenience, but usually charge fees and often require a minimum investment.

A closed-end fund is a fund with a fixed number of shares outstanding and one, which does not redeem shares the way a typical mutual fund does. Closed-end funds behave more like stock than open-end funds: closed-end funds issue a fixed number of shares to the public in an initial public offering, after which time shares in the fund are bought and sold on a stock exchange and they are not obligated to issue new shares or redeem outstanding shares as open-end funds are. The price of a share in a closed-end fund is determined entirely by market demand, so shares can either trade below their net asset value («at a discount») or above it («at a premium»). Institutional investors are entities with large amounts to invest, such as investment companies, mutual funds, brokerages, insurance companies, pension funds, investment banks and endowment funds.

Foreign Direct Investment refers to direct investments in productive assets by a company incorporated in a foreign country, as opposed to investments in shares of local companies by foreign entities. This is an important feature of an increasingly globalized economic system. Investment, in its various forms, is a major determinant of a country’s economic development.

<B>Shaffick HAMUTH</B>