Financial investments refer to any type of financial transaction that provides financial reward to the person who purchases them. These types of transactions may involve buying or selling securities, borrowing money or investing in a portfolio of stocks or other assets. Financial investments can also be created on the basis of collective investments, such as those made by certain groups, institutions or municipalities. Such enterprises include mutual funds, insurance companies and pension funds. Individuals may also create a separate fund from their own funds in order to earn more return.
Financial investments may be made in the form of shares in a company or in the form of equities in a mutual fund. Shares are issued periodically by large corporations to acquire enough finance for their ongoing business requirements. Highly profitable and highly risky, shares enable the investors (shareowners) to part-owner a particular company. These risks come because of the uncertain economic trends and fluctuating stock exchange prices, which make it impossible to predict how much a specific share of stock will rise or fall in value over time.
Unlike mutual funds and stocks, where the profits and losses of the underlying investment is expected to remain unchanged in between the purchase and sale, equity is actually designed to fluctuate with the value of the company it is related to. In order to protect their equity, financial investments need to be held for a long period of time. Long term investments, unlike stocks, cannot be purchased and sold easily, and they also take a considerable amount of time before they mature. There are however some ways one can earn profits on an equity investment such as through rent on the company’s assets, dividends, interest and profits gained from the sale of its equity.