How to Choose Your Financial Products!

These days many banks and other financial institutions provide financial information to their prospective clients who wish to invest in assets. A bank’s relationship manager or an Asset Management Company’s (AMC) advisor, are the right people to get first hand information from. But it is also necessary that in order to protect yourself from fraudulent trade practices or inculcate a little investor knowledge among yourself will do you no harm. Here are some of the important things you need to bear in mind before you invest your funds into any financial instruments.

The rate of real return is rate at which you as an investor are benefitted from when the fund matures. It is not only the rate at which your investment in the fund grows but also the tax rates and the inflation rate that you need to be concerned about. For example, investing in a fixed deposit (FD) offers an 8% rate of return for a one-year deposit but it also entitles you to come under the highest tax bracket, thereby enabling you to get an actual return only after deducting 5.3% as tax.

Inflation rates are also crucial when it comes to calculating your real rate of return. If you do not factor in inflation rate, you become a loser since it indicates an increase in the purchasing power thereby enabling you to get lesser value of returns. For example, if you have a FD that provides you 10% interest and the inflation is at 12%, you will be losing out on gaining those 2% worth of returns.

Investments are usually undertaken keeping the tenors in mind. But at times in cases of emergencies you might need to liquidate the assets in which you have parked your savings. Therefore it is important to understand the easiness that a fund provides to liquidate investments from it. But it is also important for you to choose tenors that are appropriate for your goals. For example, if you have a goal of buying a house in the next 7-10 years obviously you should not be investing in funds that have shorter maturity periods and opt for long term investment avenues. Similarly, if you have short term goals, investing in long tenor assets like PPFs etc whose maturity period is at least 10 years will not benefit you at all.

It is important to look at the entry costs, exit costs and the penalties that a fund or insurance companies or even banks impose on investors. Although most of these charges might appear to be just one time charges, it is important for you to learn as to how these costs are being imposed on you.

In these hi tech era, it is important that services provided by banks and various other financial institutions like fund houses and insurance companies are technology compliant. An ease of transacting one’s funds can always be a positive aspect to attract and maintain potential and current customers respectively. Online broking portals, insurance portals, ATM facilities, online portfolio management, online financial calculators etc are some of the technological solutions that banking and non-banking institutions can provide to their customers in order to help in the ease of transactions.