Investors generally begin to fret when the markets become highly volatile and enter the panic zone. Although, market volatilities can shrink your returns or even provide you negative returns, you need wait for the irregularities to even out eventually as time passes. But if you are a new investor, and do not wish to invest in markets because of their current situation, it is time that you change your mind.
During phases where the inflation rate and the interest rates are on the rise as of now, it will only be wise for you to not opt for traditional investment plans like Fixed Deposits (FDs), Recurring Deposits (RDs) Kisan Vikas Patra (KVPs) etc since they have a fixed interest rate which will not enable you to benefit from the high interest rate cycles.
If you do not have a very good risk appetite, and want to secure a major portion of your income in such traditional investment avenues, you can reinvest the interest that you earned on such assets into equities. By this you will be gaining from gains and plus you your capital will also be protected. For example if you have invested a certain amount in your Fixed Deposit (FD), you can reinvest the interest that you accrue from it into equities linked Mutual Funds. You can partially secure your investments into equities by opting for investment into it through the Systematic Investment Plan (SIP). By this you will be able to monitor the performance of your funds and assess whether you need to be continuing with them or not. If a particular fund is consistently been underperforming for more than 2-3 quarters in comparison to its benchmark and its fellow competitors, you may consider exiting the fund.
Again, equity linked portfolios are better for those investors who wish to invest for the long term growth. For example, if you wish to invest in your child’s name for the purpose of sponsoring his/her higher education which is assumed to be 10 years down the lane, then equities linked Mutual Funds investments is what is required. A well balanced portfolio of 4-5 good performing funds is what is required. The key here is diversification. Try to diversify your Mutual Funds basket, by choosing balanced funds, diversified funds, hybrid funds, large cap and multi cap funds can be some of the options to consider. When it comes to investments in equities it is important that you factor in inflation that can be expected after 10 years. If the inflation rate is greater than the rate of return, then your returns will have negative gains. You might need to avail a loan for bridging the gap that your investments created. Loans can be quite an expensive proposition since the interest rates charged by banks are at an upswing.
Coming to the debt aspect of your portfolio, it is important that you understand the tax efficiency of your assets. If the rate of tax charged on your returns at the end of the tenor results in minimized returns, there is no use of such investments. For example, returns generated from investments in Fixed Deposits (FDs) are taxable returns, whereas returns generated from debt funds like Fixed Maturity Plans (FMPs) are tax efficient than their counterpart.
The next step is to secure yourself and your dependents by buying adequate life and health insurance covers. Investing in a pure term life cover is beneficial rather than Unit Linked Investment Plan (Ulips). It is important to know that the amount that you invest in insurance cover should be at least 5 times your annual salary. Investing into a general health insurance cover along with a critical illness cover can provide you comprehensive medical protection in case of emergencies.