The investor would want to invest mainly to increase the rate of return on his assets.  Through our need to create a source of income, an additional source of income or to further create an asset base to fund future requirements (like a personal pension fund).

Let us consider why people invest.  A person does a job of work to earn an income.  At the end of the month he manages to save a residual amount of his income.  Which after a period of time would add up to a substantial amount (given the added advantage of interest on bank balances). 

The person may have received an inheritance or a legacy.  This too is lying in the bank.  All this money which is lying in his bank account is earning only the savings bank rate, which would be 4% to 6% per annum.

The person is rational and knows that today even inflation ranges from 5% to 7%.  He realizes that leaving the money in a savings bank account would tantamount to losing the value of money over time.

To stop this loss of value, he decides to shift the money not required for current expenses into a 3-5 year fixed deposit.  Here he is able to get an interest rate of 7% to 8% per annum.  By definition this person has invested his money.  As he has employed the money in the present, to increase the rate of return in the future.

The aim is clear (to obtain a higher rate of return, that is above the inflation rate), the financial instrument is available (Fixed deposit), the investment risk is known (which in this case is zero) and the person goes ahead and invests.

Self-empowerment: How And Why To Invest In Your "creative Capital" by Lawrence J-E Poole Read more about this book…