Leverage or, in this case, financial leverage, meaning an investment strategy where you take on debt to increase investment returns, raise funds for the company or acquire more assets is now becoming more popular. Businesses or individuals can borrow money from lenders for the above purposes, with a commitment to repaying the borrowed amount along with the applicable interest.
When the individual can manage repayment through the income generated by the asset, it is known as leverage. Here is a leverage example to help you better understand the concept: A company invests ₹1 lakh and borrows ₹9 lakhs to buy a factory of ₹10 lakhs, which yields an annual profit of ₹1.50 lakhs. If the company can repay the loan with the returns earned, it leverages the loan to acquire new assets from the borrowed funds.