What is a Fixed Investment?

Also known as fixed capital, a fixed investment is any tangible asset that is used in the production process. There are a number of examples of investments or capital of this type, with land, buildings, machinery and vehicles being the most common. In many instances, technology is also viewed as a fixed investment. Without these types of assets, the production process could not take place and the business effort would fail.

Just about any type of business will require some type of fixed investment as part of the operation effort. Even businesses that do not actually produce goods for sale to consumers will require some type of facility to base the operation and make use of some type of machinery and equipment to operate the business. This means that people who are self-employed and operate small businesses from home on a freelance basis will still make use of some type of tangible capital goods to carry out business operations. While the range and of fixed capital or investments held may be different from one business to the next, properly identifying an investment as fixed is important to maintaining proper accounting records and accurately providing information to tax agencies.

There is a crucial difference between a fixed investment and other assets used in the production process. An investment of this type is considered permanent and is capable of being used in the operation over the long-term. This is different from other investments that will be consumed as part of the process, such as raw materials, labor, and activities that are considered ongoing operating expenses. A fixed investment is also different from what is known as a fixed-term investment, such as a bond issue that is held for a period of time and then cashed in at the point of maturity.

The identification of a holding as a fixed investment is also important in terms of taxation on those goods. In many nations, tangible capital goods are granted certain tax benefits that are not readily available for other types of investments or assets. For example, a business may be able to claim some amount of depreciation on buildings or machinery as when preparing annual tax returns. This in turn allows the business to claim tax breaks that recognize the wear and tear on the assets over time, and allow the company to reduce the tax burden by a small amount. Doing so allows the business to put that savings aside for the day when the fixed investment is no longer usable and must be replaced.