It is important to put your money in the right investment avenues when you want to create a decent financial corpus to meet your financial goals. What is more important is to explore all your investment options before taking a decision to invest.
We’ll give you the answers to some important questions that you might be pondering about before making investments. Read on to get enlightened.
It is found that many people who are not well informed about financial matters, find it awkward to discuss anything related to money.
Any financial planner will tell you that financial awareness is an important factor in ensuring an individual’s financial well-being.
Putting money away into savings and investments without first outlining a plan is like chasing fool’s gold. In simple words, investments made without the correct information is like pouring money down a drain. Wrong investments could deplete your financial reserves.
Here are some questions you should ask before venturing into investing.
How much money should you invest?
Before you settle on how much money to invest, you must make sure to cover your routine expenses. It is important to appropriately cover for any unexpected expenses that may arise in the future. That’s where an emergency fund comes in handy. Have you got one?
What you may need is a regular income to take care of daily expenses and an insurance to provide a financial safety net in case of unforeseen events.
You also need to make investments in assets that will offer growth of capital over a certain period of time. It is not a good idea to keep your money stagnant. By doing this, you will be sacrificing the potential for long-term wealth creation.
You will be duly rewarded if you make the effort to invest your surplus money regularly.
What will happen if the money that is invested is required for other needs?
You must have at least a sketchy idea about what these ‘other needs’ could be. Plan in advance for these ‘maybe expenses’ by salting away money for those unpredictable needs. Ensure that you hold this money in an easily accessible investment product. Think Liquid Funds which have flexible withdrawal options.
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Looking to save taxes?
If you are looking for tax savings with investments, avoid making heavy investment commitments and remember to keep your investments relatively flexible until you are able to build a decent amount of wealth.
Avoid committing yourself to very high insurance premiums or Home Loan EMIs because these may turn out to be unaffordable for you over time. This is because most of your income will be directed towards fulfilling these commitments. And without sufficient financial backup, you will soon face a shortfall in your finances. If you really need to include those, set up a provision for them before you invest your money.
Which type of investment product to choose?
It is better to make more investments in safe, low return financial products, rather than pooling a large chunk of your finances in volatile investment products such as Equity Mutual Funds, where returns are not guaranteed. This is in case you are making investing for the short term. You can afford to take higher risk for long-term investments.
It is also important to effectively manage your risk profile with regard to your investments. Here’s a useful tip. Begin small and grow your investments over time. Attempt to assemble a diverse set of investments that seem feasible for you. Every investor is different. What might be suitable for one person may not ideally be suitable for everyone,
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Will the value of money depreciate if invested?
This is a myth. Money loses value if it is not invested. It is wrong to have a hoarder’s sense towards money. Banish the idea that money accumulated is a valuable asset.
Failing to consider the effect of inflation is also detrimental to wealth creation. As a good investor, you must ensure that your finances and investments beat inflation so that the value of your money does not depreciate. The right investments will help you fight inflation. Make an informed choice.
Will the money be safe?
Be cautious about the investment avenues you choose to put your money in. Don’t be lured by seemingly exponential returns and blindly invest in investment products that are not suitably certified or regulated. Good and bad returns on investments are decided by how the investment product, say Mutual Funds, utilises your money. Ensure that you invest in a trustworthy investment product.
What if you lose the money due to market fluctuations?
You don’t need to worry about losing your investment corpus if you have a regular paying job and can comfortably meet your expenses and have some finances to fall back on. Yes, losing money is hard, we completely understand. But the thought of losing money won’t arise if you enter into an investment with at least a basic understanding of its manner of operation. A certain degree of knowledge is necessary before making any financial decisions. If you blindly subscribe to the herd mentality and make a rash investment, you can only be pitied if you stand to incur sizable losses.
Remember, with investing, remaining invested for a long term is what matters most. It is not going to help if you only focus on making profits on your investments in the short term. Worrying unnecessarily about every minor dip in the market will also lead you nowhere. A patient attitude is key to finding success in investing. Over a long investment tenure, your finances will average out and returns that once seemed meager may look promising after a certain period of time. Investments take time to reflect decently positive results.
What is the ideal investment option for a risk-averse investor?
Debt Funds that invest in money market instruments are a good investment option for the risk-averse investor. If you want a degree of flexibility in your investments, with relatively safe, yet low returns, choose to invest in Debt Funds.
Fixed Deposits are now investments of the past. A Debt Fund scores over a Fixed Deposit because these funds offer investors a higher rate of return along with being tax-efficient.
If you remain invested in Debt Funds for more than 3 years, your investment will become tax efficient as a result of indexation.
Debt Funds are a good investment choice to make if you want to save money towards a goal that you want to achieve in the near future, say, within one to three years. This is termed as short-term investment goals and Debt Funds are ideal investments that will help an investor meet short-term goals. You should choose a Debt Fund that caters to your financial needs.
The right investments depend on your individual financial requirements and liabilities and will help you in the attempt to make your money work efficiently for you.
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