If your income increases and your potential to save is not up the mark then there is no point of investing. The main advantage of investing is to help you build a sizeable amount of corpus at the end of the tenor. The more you contribute the better. Most financial advisors suggest that after deducting the tax and you general expenses, you must try to save at least 40% of your income. And contributing your bonuses, increments etc, and integrating them with assets is sure to give your portfolio a robust growth.
Apart from locking your funds into various assets, it is important that you hold an emergency fund. Emergency funds can help you during any kind of emergencies. In case of any uncertainty or unforeseen expenditures, it is practically not possible for you to liquidate your assets. And even if you manage to do so, you will be penalized with fines, penalties etc. This will reduce the overall value of your fund. Also, the time involved in finishing up all the formalities is quite long and you may not have that resource in hand to a great deal. Getting into debts like borrowing loans like personal loan or any other debt which charge you exorbitant rates of interest might be the next resort you may opt for. But instead of getting into such hassles, make sure you set aside a good portion as a contingency in order to meet any unforeseen requirements without any sweat.
It is worth noting that, in order to come out prosperous once you have called off your SIPs and wish to enjoy your savings, you need to consider and factor in the inflation rate with the rate of return of your fund. Always try to opt for funds whose rate of return is greater than that of the predicted inflation rate after about 10-15 years. Doing so, the value of your assets are increased since every rupee you spend has a greater value which otherwise may not be the case in case the inflation rate is higher than the rate of return. For example, if you saved in any asset whose rate of return is lesser than the inflation rate, you may need to shell out extra cash just to purchase the goods or avail any service. This reduces the value of your investments tremendously.
A great tax benefit fund is the Public Provident Fund (PPF). Exhaust the limit of Rs 70000 in order to attain maximum tax benefit. Being a debt fund this will provide the much required stability to your portfolio if it contains a good portion of equity investments. If you are an investor who is saving in the Equity linked Savings Scheme (ELSS), you may not be able to do that since the Direct Taxes Code are most probably likely to get implemented from April 2012. Taking your funds out from such assets and moving them into Fixed Maturity Plans (FMPs) or investing those funds into dynamic or short term debt funds rather than investing in diversified funds can be opted for.
Starting to invest at an early age, i.e. at the beginning of your career ladder can give you good returns. In order to provide yourself with excellent returns it is important that you increase your savings capacity with the increase in your income. Doing so, the overall benefit of maximizing your returns can be obtained. Also remember it is not the number of funds that your portfolio comprises of instead how much you invest in each fund is what matters. Having a few funds and investing efficiently in them is much more efficient than investing a small amount in n number of funds.