Is Investment an Asset?

If we talk about the financial world, an investment is a way of putting your money in any item or object where you expect it to give returns, not immediately but in the future. Here the future may range from months to years.

Examples of investment are putting your money in Fixed Deposit, buying a piece of land, purchasing shares or bonds, etc. 

Now let’s talk about what an asset is

As per Wikipedia – An asset is anything of value or a resource of value that can be converted into cash. Any object or thing that generates revenue, income, or return, like an increase in cash flow, reducing expense, increasing profit, etc., will be called an asset. The examples which we talked about as an investment can also be the examples of an asset, like FD (it gives you Interest), land (it gives you capital appreciation ), and Shares (it can give both dividend and capital appreciation in the form of an increase in share price) are all assets. 

So, are all investments an asset? 

Now, this is a tricky question, as you invest in any object or thing with the motive that it will give you some return in the future, but if that item fails to generate a return, can that investment be called an asset? 

The answer is No!

How is that possible? Let’s take a famous example to understand this; all of us must have heard about the Yes Bank Scam. People like you and I have invested in Yes Bank’s shares with the hope that the share price will increase in the future. But in 2018, the scam was exposed where it was evident that management hid the facts from people and inflated their profits. This led to the fall of Yes Bank’s stock price.

Now the thing to note from here is that we invested in the share, with the hope that it would give a return in the form of an increase in the share price, but instead of a price increase, the price crashed. 

So will this investment be called an Asset? Definitely NO!

The share price did not generate any revenue or income, but the share price value decreased, so this investment will not be called an asset, but will it be called an investment? Yes, it is an investment but a poor one.   

From above, we can conclude that investment can be of two types- Good investment and Poor investment. 

A good investment will become an asset, while the poor may be called a liability.  

Now let’s talk about another heated question “Is buying a home for self-occupation an investment asset?”

Let’s test the definition of investment in this question. While buying a house for self-occupation, we have put our money in the hope that it will give us good returns. Is this statement true? The answer is NO. We bought the house intending to live in it. When we buy a house, unless there is an intention to sell the house later on and enjoy the capital appreciation, we cannot call it an investment.

Also Read- 6 Mistakes To Avoid When Taking Home Loan

So buying a house for self-occupancy does not meet the basic investment criteria, so it cannot be called an investment. Had we used our money to purchase a house, not for ourselves but to rent it out, it would definitely be called an investment. If we test whether it is an asset, it will qualify as an asset also, as rental income is also generated. In that case, it will be called an Investment asset.     

With the above, we can conclude that “All Assets are Investment but not all Investments are Assets.”

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