Capital Investment Basics
Capital investment refers to the use of financial instruments such as secured and unsecured loans and debentures, fixed assets and marketable securities for the purpose of raising funds. A financial instrument is one that offers a fixed return (either immediate or deferred) on a pre-determined amount of money. An important aspect of capital investment is that it should not necessarily be the same as current or long term savings because the purpose of capital investment is to raise funds to eventually make returns. This is unlike savings which are generally designed to provide long term stability. However, in both cases, returns should be relatively fixed.
There are different types of capital investments available for purchase by investors, including common equity, preferred stock, debt, property and business enterprises. Typically, most companies will issue common equity through dividends to its shareholders. Preferred stocks are sold in stock exchanges. Debt instruments include bank notes and mortgage notes. Business enterprises include mutual funds and venture capitalists.
Debentures are an example of a form of debt instrument. In general, debentures are long term assets. Common equity and preferred stocks are examples of long-term forms of debentures. Common equity and preferred stocks are both examples of short-term forms of capital investment.