Understanding types and benefits of fixed investment

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Depending on the capability of a business, when capital is used to purchase, lease, rent or hire assets of durable nature for repeated use over a long period of time, it is known as fixed investment. It is therefore right to define fixed investment as the money invested in fixed capital or investment in depreciated fixed capital.

Fixed capital includes the assets and capital investment that a business needs in starting up and conducting its operations. These assets are not used up in the production of a product, they have a reusable value. They can stay in the business almost permanently, or at the very least, one year.

In order to start up and maintain business operations, businesses should consider these three types of fixed investment.

Investment in machinery

For any business, investing in machines for its operations is as good as elevating productivity and efficiency in production. This is important, as it ensures more returns are yielded. Not to downplay the importance of human resource, but an investment on machines ensures work is done faster and more efficient.

Investment in technology

We live in a dynamic world where there are new technological discoveries and inventions every other day. Technology has allowed the growth of existing economies and development of new ones. This goes to show that an investment in technology ensures that a business is better placed in terms of economic growth.

Investment in land

The rewards of investing in land is huge. This is because the value of land appreciates over time. A business can decide to either use the land by: constructing a building on it and make it the business premises; construct buildings on it and rent it to tenants or sell it to willing buyers; or just allow it to sit there until its value appreciates and sell it. There are many options to land investments all of which ensure that the fixed capital put into the investments reflect as growth of a business in the long run.

For a business, even at its most minimal stage, fixed investment be it in machinery, technology or land is important to say the least. Some of the benefits of fixed investment include:

i. Establishment of a business

Every business, big or small, starts from somewhere, and at the beginning a fixed investment is made in the form of fixed capital. This fixed capital takes care of all the preliminary expenses. It is also the fixed capital that buys the business' fixed assets. Hence, having a fixed investment is important in business.

ii. Promotion of the business

After the business has been started, naturally one of the main objectives is to ensure its growth. This goal can be met by applying the necessary promotional tactics. For example, promotion through advertising. Fixed investment ensures that all the promotional fees are catered for.

iii. Replacement of obsolete assets

These replacements are vital if the business is to increase on efficiency in production. Hence, the business should have sufficient fixed investment to service in buying and replacing of the obsolete assets.

It is therefore right to posit that fixed investment is a fundamental aspect for any business venture.

Article sources

https://www.moneyadviceservice.org.uk/en/categories/investment-types

http://www.investorguide.com/article/10275/the-advantages-of-investments/

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