FINANCIAL INVESTMENT AND REAL INVESTMENT

The financial investment simply refers to the transfer of rights from one person to another. It does not add to the real capital stock in the economy. For instance, the deposits into the bank, the purchase of a house, the existing shares, debentures, bonds by a person from the others do not create anything new. These merely involve a transfer of the title of ownership from one individual to the other, leaving the stock of economy’s real capital unchanged. When one purchaser invests, the other (the seller) disinvests; the investor getting some return on this investment. But, from the economy point of view, there is no investment.
    
The real investment on the other hand creates an additional productive capacity in the economy. The establishment of a new factory or a workshop is an example of real investment, This act of investment is important not only for him, but also for the economy. Keynes has used this investment in the national income analysis. It is important to note that when an individual purchases new shares of a company, the financial investment will represent the real investment,because that would create a new capital asset. In macroeconomic analysis, real net investment is taken into consideration both in public and private sector.