Asset refers to any item of ownership having exchange value. The assets can be owned by an individual, group, organization or government. Assets are of either real or financial in nature which are briefly described below:
Read also: What is Investment?
Read also: Why people make investment?
Real Assets and Real Investment:
Real assets are those assets which have physical existence and can be seen and hold. Gold, land & building, inventory, plant and machinery etc. are some of the example of real assets. For example, if you purchase gold then its ownership is transferred to you from the seller and you a right to hold or sell it. In order to establish any business, the business organization has to make huge investment in real assets such as land and building, plant and machinery, inventories, human resources etc. which is termed as real investment. The investment in real assets leads to the investment in financial assets. To buy these real assets the company have to collect adequate capital and for that the company issues shares or bonds. Here if any investor invest money in shares or bonds then it will be the financial investment for the investors in financial assets. Some of the example of real assets are:
- Gold
- Plant & Machinery
- Land & Buildings
- Inventory
- Human resource
- Goodwill etc.
Investment in real assets is regarded as long-term investment because huge amount of fund has been invested while purchasing real assets like plant and machinery and frequent replacement is not possible due to the large amount of costs. Real investment increases the productivity of the business. For example, if you invested fund in the training and development of your employees, then it will ultimately increase the productivity of your employees thereby increasing the efficiency of the business. But the availability of the information regarding real assets are low. For example, if you want to purchase a machinery for your business, then you have to depend on the information available online.
Financial Assets and Financial Investment:
Financial assets are those assets which do not have physical existence. When we purchase financial assets we only get a paper of financial claim as a certificate of that assets which is viewed as financial assets. So, it is also known as paper assets. Although the certificate of claim is viewed as financial assets they are invisible in nature. Financial assets also can be defined as a claim to the income generated by the real assets. Some of the example of financial assets are pointed out below:
- Equity Shares
- Preference shares
- Corporate Bonds
- Debentures
- Treasury bills
- Commercial papers
- Certificate of fixed deposit etc.
The investment in these financial assets is considered as a financial investment. The financial assets itself do not possess productive capacity but it helps to increase the productivity of the real assets. For example, the company can use the income received from the investment in securities to improve the condition of the building, maintenance of the plant and machinery, HR training and development etc. which helps to increase their productivity.