If you wish to know more about the business world, one aspect that often comes up in various topics and articles is investment and people who do them on a regular basis, i.e., investors. Knowing more about an investor and who they are is essential if you wish to learn any crucial thing about the business sector.
Suppose you wish to explore the various aspects of the business world, the global economy, the various markets, and the funding structure of most companies in the world. In that case, you will need a fundamental knowledge of who an investor is, what they do, and the different types of investors out there.
In this article, we will be going through exactly that and find out all the details about investors, the types of investors, and how they work. We recommend reading the article till the end so that you don’t miss out on crucial details.
What Exactly is an Investor?
An investor is either an individual or a business entity or a financial entity who takes their financial capital and puts it (or better, invests it) in a particular commodity, currency, or company in hopes of getting some semblance of financial returns in the future. A company can be an investor, and even a mutual fund can be called an investor.
The main point is that anything that uses their own capital willingly to finance a business or market endeavor or commodity is putting their hopes on the chance that the commodity’s or endeavor’s inherent value will increase over time in the market and deliver the investor financial returns when he takes his share of capital back.
An investor invests through various markets and financial channels that help channel their capital into a singular objective so that they can gain additional wealth over time. Investor invests their money for a variety of reasons. For some people, it is a job, for some, it is a passion, and for others, it is just a means of earning additional income over time that can help them in the later years of their life.
Investor uses a variety of investment opportunities to earn their returns, such as stocks, commodities, ETFs, cryptocurrencies, real estate, and mutual funds. An excellent active investor will actively search for investment opportunities everywhere and seek the ones that give the investor the most profit at the least risk.
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There are various types of investors out there that cater to solely one financial channel and invest most of their capital in it. We will be talking about these various types of investors and what they invest in, but before we do that, we would like to clarify that a trader and an investor are not the same. A trader looks for high-risk short-term investment opportunities that generate larger profit at higher risk, while an investor seeks minimal-risk long-term investment opportunities that generate returns over some time.
Passive and Active Investor
Before they are categorized into their different subtypes, an investor is first categorized based on two main categories – active investor and passive investor.
- Active Investor – An active investor is someone who constantly checks the market for amazing investment opportunities and has made investing an integral part of their life. For example, investors like a stock market investor and a cryptocurrency investor can be categorized as active investors.
- Passive Investor – On the other hand, a passive investor is an investor that makes long-term investments that may have poor value at the start but hold a lot of value potential for the future and can serve as an excellent investment opportunity if you are willing to wait for a long time. An investor like a mutual fund investor and a real estate investor often come under this category.
What are the Different Types of Investors?
Now that you are well aware of the main categories defining investors, it is time you find out the several sub-categories and types of an investor. They are –
1. Angel Investor
An angel investor is an investor that has amassed massive amounts of wealth and revenue for themselves. This investor earns an income that is 3x-4x or even more than the income of most successful average men. Their net worth is often found to be in millions, and they are an investor who can be found anywhere in the industry sector. An angel investor primarily invests in first-time business companies and startups by purchasing large amounts of their shares.
2. P2P Lenders
P2P lenders are investors, or groups of investors, that help small businesses get a chance with their products and services in the financial market. These lenders are specialized in this type of investing, and if a business wants their financial help, they need to appeal to them by themselves. If they like the business idea and think it has potential, these lenders personally fund the ventures of small businesses and purchase their shares.
3. Personal Investor
A personal investor is an individual investor that invests their capital in a business company, or any investment opportunity for that matter, for their own personal gain. They do not represent a group, nor do they invest only in small ventures particularly, but everywhere they see a chance of investment. If these types of investors were to invest in businesses, they need to go through a rigorous documentation process to do so.
4. Banks
Banks are investors as well, but they invest in a different way than individual investors. Banks provide businesses, companies, and individual loans that act as their “investment.” This investment gets a fixed monthly return which is increased by the interest rate charged by the bank. If a business is looking for financing through investing, opting for loans from their local banks is their best choice.
Learn more about – Difference Between Banks and NBFCs – Which is Good for MSME?
5. Venture Capitalists
A venture capitalist is an investor that invests in a business or company only and only if the said business has an idea or growth rate that has the potential of becoming immensely successful one day. If a business shows signs of rapid growth in the future, a venture capitalist will be the first investor to invest a large amount of capital in the business by purchasing an equity stake.
Conclusion
An investor is an integral part of the business world, and it is imperative that you have basic knowledge about them and how they function. We hope this article was insightful.
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