The investment process, by definition, is the process of placing financial resources or any other capital, the purpose of which is to obtain future profit. In other words, the investment process can be thought of as some kind of action in which investment funds or some other capital invested by an investor works for him, and at the same time brings him potential income. That is, investing can be considered one of the possible ways to profit by investing capital.
The investment process is one of the components of the modern economy. The investor actually acts as a creditor, however, the risk in investing is different from the credit risk. Credit and interest, regardless of profit, must be repaid on time, and thus bring income. You can count on the return on investment and income only in the case of a profitable investment project, otherwise the investment may be lost.
The investment process consists of a series of procedures that enable the investor to choose an investment project, the size of the investment, the moment of its implementation, the investment itself and, finally, control over the implementation of the project.
However, not every small investor has the time to choose alternative solutions, not to mention the necessary professional knowledge as well.
Therefore, it is no coincidence that the emergence of a large number of different forms of collective investment aimed at meeting these needs. Perhaps the most common and promising form of collective investment are investment companies.
An investment company is a specially organized form of a financial intermediary that directs funds raised from investors to acquire financial assets. Investors, in turn, are vested with certain rights in relation to both the acquired assets themselves and the profit received.
Thus, one of the main functions of investment companies is to pool the capital of many investors with the same investment objectives. They usually exist in the following organizational forms:
- mutual funds (open investment companies);
In this way, the investor is exempted from the need for many, perhaps, procedures that are not familiar to him, for example, risk calculation, accounting and taxation - experienced managers are responsible for all this.
An investment fund gives investors the opportunity to reduce investment risks. This is a universal way of investing your capital, because in this case you can choose the optimal ratio between the riskiness of investments and the level of their profitability.
The investor of the fund formally, in proportion to the contribution made, owns a share of each of the shares of the assets of the investment fund, but in reality, he cannot participate in the management of the joint-stock company - his interest at the meetings of the shareholders of the joint-stock company is formally represented by the managers to whom he transferred these powers when buying shares. The real and formal owner of all shares as a legal entity is an investment fund.
The emergence of stock forms of the investment process facilitated the transfer of capital from one to another industry. We can say that investment funds are huge mixers of capital. Thanks to them, ordinary investors can save and accumulate capital, while avoiding the risks inevitably associated with investments.
Obviously, the investment process, like any other that is subordinate to the achievement of a specific goal, needs to be managed.