Differentiate between the following: 'Investment' and 'Speculation'

Answer 3(a) 'Investment' and 'Speculation' Basis for comparison Investment Speculation Meaning The purchase of an asset with the hope of getting returns is called investment. Speculation is an act of conducting a risky financial transaction, in the hope of substantial profit. Basis for decision making Fundamental factors, i.e. performance of the company Hearsay, technical charts and market psychology Time horizon Long term Short term Risk involved Moderate risk High risk Behaviour of participants Conservative and Cautious Risk takers Intent to profit Changes in value Changes in prices Expected rate of return Modest rate of return High rate of return Funds An investor uses his own funds A speculator uses borrowed funds Income Stable Uncertain and Erratic