Types of Investment: Exploring Different Methods - Research Paper

Introduction

Investment is a term in finance which means putting resources in something with an expectation of getting profit (Allman, 2015). Investment can be dated back for centuries and it has grown at different levels. There are several types of investments that suit different fields. Investments can be done in different fields using different methods. There are existing theories of different types of investments and the places that suit them. This paper researches the types of investment through questionnaires where clients will respond to variables based on which type of investment is suitable for what type of investment. An analysis of observations, findings and conclusions will be conducted too.

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The questionnaires posted will determine the most sustainable method of investment. Each question is followed by responses from clients. The responses will range from one to five points with which it shall determine

Variables

Very unlikely

- What roles do different stakeholders in the impact investing process play?

There are several impact investment stakeholders. Investors themselves are part of the stakeholders who are responsible for identifying possible niches for investments. Managers' workers and the staff in any firm which is involved in investment are responsible for ensuring the smooth running of all the processes of investing in their respective jurisdictions.

- In particular, what types of investors can be differentiated and what are the ethical decision making processes underlying their engagement? How do they justify their legitimacy?

There are two main types of investors, capital investors, and impact investors. Capital investors are individuals or firms who invest their resources in business intending to receive a return afterward. Their legitimacy can be verified with the terms of their operation and their registration details. Their number of completed transactions can be used to account for their gentility. Impact investors, on the other hand, are types of investors who want to bring change in a certain financial sector as well as making a profit. Their decision to invest depends on what they want to achieve in terms of changing certain business and social trends. Their legitimacy is a time difficult since some investors might claim to want to bring a positive change through their investment but they want to gain profit from the investment. It is upon the firm or individuals entering the contract to carefully find out if an impact investor is genuine through factors like their popularity, regulations, and terms of their contract.

- What types of impact investing funds can be identified and how do they differ in organizational structure, capabilities, and governance?

Different sources of findings in an impact investment attract different processes, funds from firms or individuals who want to invest in a company are treated as a liability. They are used in the functions they were intended for. They are governed with regulations provided for impact investment funds but do not change the organizational structure. The organization receiving the funding will in most cases continue with its operational structures but the manner in handling the funds will change.

-How do the organizations and projects targeted by impact investing differ and why do they select to engage in impact investing rather than other financing alternatives?

Different organizations have different visions and missions. If the type of investment does not suit their visions and missions the organization will opt for the type of investment that will help realize their goals. If an organization has a project that is intended to change the outlook of the organization or to promote the organization an impact investment fund will be suitable for that. However, when an organization wants to make a profit out of t what they are doing, capital investment will be suitable for them. Different financial alternatives attract different functions of an organization which may be difficult to change because of the objectives with which the organization is set.

-Are the ultimate beneficiaries aware of the presence of impact investors and how do they assess the legitimacy of impact investing?

The beneficiaries which the impact investment is targeting have to know about the deal. Through the organizational representation, the beneficiaries will be informed of the type of investment and how it will benefit them. They will conduct an assessment to determine the possibility of the investment to prosper and approve it. If the beneficiaries are not satisfied with the type of investment presented to them; they may reject it or change a few things through a negotiation. The legitimacy of an investment will depend on realistic provisions of investment. The unreal investment will promise fancy benefits which are not real.

- How do different impact investing practices deal with the ethical tensions resulting from the multiple objective functions pursued?

Impact investing practices needs to be according to the provisions of ethics during investment practices; multiple functions may violate the ethics of investment. All the right of stakeholders has to be observed while setting up activity through impact investment. If the investment is likely to bring negative effects to any of the stakeholders in a firm, it should be rejected or made to change their intended impacts to suit the welfare of all the stakeholders.

-How do impact investors formulate their explicit and implicit objective functions?

To come up with the explicit and implicit functions of an investment, an assessment of what the investment is intended to determine the cost it will require and the other possible negative impacts it might bring to the investment. Explicit funds will be determined through a report after an assessment has been done on an intended function. Experts can be used to find out any financial constrain which the function might experience during the implementation process. An anticipated price on the explicit cost may also be made based on historical investments done; the same will also apply to the implicit costs.

-What ethical tensions can be observed and how do impact investing funds purport to manage these internally?

Any negative effect that is brought in by the investment to stakeholders is a sign of ethical tension. Breaking the provision of the rule that is broken will also bring ethical tension to the investment. Once the tension has been identified through the effect brought of rule-breaking, the issue needs to be reported to the internal management between the investors and the organization.

- How do these tensions manifest themselves between the different stakeholders (investors, fund managers, investees, and beneficiaries) and how are these addressed?

As stated above, ethical tensions manifest themselves on beneficiaries when they feel any negative effect from the function of the investment. In most cases, ethical issues are related to investors, their small ethical tension which is associated with investees or beneficiaries. However, tensions happen when one among the stakeholders breaks the rule in the contract. When an investor fails to accomplish the tasks which were agreed upon, it will have caused an ethical tension. If any the investees or beneficiaries fail to comply with any regulations, they will be liable to have committed an ethical offense. All the mistakes happening on both sides are either intentional or when there is a misunderstanding about what should or should not be done.

- What are the ethical implications of impact investing, both direct and indirect?

It will result in a loss to either investee of investors. The greatest impact which can occur whenever there is an ethical issue during investment is a loss. Losses can be incurred on either of the sides or both. The loss can be of the property of capital. Time will have also been lost during the process.

- Do impact investing funds achieve their stated goals? What are the ethical consequences of missing out on some or all of the intended targets?

Some achieve their goals while others do not. Depending on the right anticipation on investment, impact investment can be of benefit in business. However, when there is a wrong analysis of the niche to be invested in, a loss can be incurred. Compared to capital investment, impact investment experiences lees goal achievement.

- How do impact investing funds select their investees? What are the ethical implications of the deal screening and selection?

Impact investment chooses to perform investees before allocating its funds for investment. Positive track records are some of the things that impact investors consider when allocating their funds to investees. They also consider the rules of the investees of it suit their objectives during investment. On- complicated rules are suitable to trade with.

- What is the overall effectiveness of impact investing and how could it be improved?

Impact investments are less effective compared to capital investment. There are several impacts which are needed to be made for an investment to succeed. The impacts are sometimes challenging to accomplish, unlike capital investment where the only target is returned. Impact investment can be improved by allowing such investments to work under limited restrictions.

- How does the emergence of impact investing affect the overall allocation of capital? In particular, has impact invested lead to crowding out effects?

Sometimes the intended effect is not realized but there is another unexpected effect that could be made by impact investment. In a situation where the intended impacts are achieved alongside unexpected impacts, crowding of impacts is said to have happened. When the impacts are negative; it will be a loss to either the investee or investors.

Observations

From the responses gathered, it indicated that capital investment is preferred by many people as compared to impact investment. The method of collecting data, however, had some disadvantages, it had specific questions that were fixed and the clients had little freedom in giving their opinions. Impact investment was likely to experience ethics tension as compared to impact investment.

Findings

The research found out different perceptions of different clients regarding the two main methods of investments. Impact investment was perceived as a second alternative in investment while capital investment was considered the best alternative. The foregone choice was affected by the fact that impact investment has different goals to achieve which are sometimes difficult to be achieved, unlike the capital investment whose goals are to get profits in a firm.However,the two methods of investment cannot be used interchangeably,each method serves its goals and objectives.

Conclusion

In conclusion, the research was successful in finding the responses for the questionnaires concerning the variable of investments. The responses were aligned to most likely variables in favor of capital investment and least likely to impact investment method. It was difficult to use the variables to determine the responses since they were random and open-ended. Conclusively, from the responses gathered, the research achieved its goals of determining the least likely and the most likely method of investment.

Reference

Allman, K. A. (2015). Impact investment: A practical guide to the investment process and social impact analysis. John Wiley & Sons.