In order to increase the returns on your portfolio, it is important that you invest your funds into equities indirectly through Mutual Funds. This will save you from the hard work of watching your stocks every single hour, which is actually done by a Mutual Fund manager.
Debts like loans are considered to hamper your finances since it takes away a major chunk of your finances in the form of EMIs. If the loan in question is a home loan, then you can take a sigh of relief since home loans carry good tax benefits on their interest component. But a word of caution, make sure you know the rate of interest the bank provides to the present and potential home loan borrowers. If the interest rates are as per the market rates then it is fine for you to continue paying the loan through EMIs, if not, prepaying the loan will be better.
Once you are clear about your credit position, you need to structure your portfolio. A maximum of 4-5 funds can encompass your portfolio. Make sure that your portfolio is diversified, and provide you with a good risk exposure. As said earlier, the better your risk appetite the higher will be your rate of return on your investments. Invest into equities using the Systematic Investment Plans (SIPs) as this will enable you to re assess your portfolio and understand how your assets are performing. Small cap, small –mid cap, mid cap, mid-large cap, large cap, hybrid funds, balanced funds, sectoral funds etc. are some of the different varieties of equities which you can consider. It is not necessary that more the number of equities, the better returns you will earn. Even if you hold two funds which have been good performers consistently, just by increasing your investments in each you can increase your returns.
Once you have fixed the tenors of your equity funds, the next step is to make way for Systematic Transfer Plan (STP). With the help of STP, you can transfer fund from your source fund to a short term debt of your choice. This will help in safe guarding your funds from market volatilities when your fund matures.
Once you have chosen your equity basket, the next step is to choose your debt funds. Apart from locking your funds into Fixed Deposits (FDs), you can take advantage of the short term debt plans where you can earn good interest rates. Investing in Public Provident Funds (PPF) is also recommended since they provide good interest rate and tax benefits of up to as high as 8%.
There are some investors who like to trade in equities directly. However, directly trading in equities is not prohibited. If you can actually manage to learn the tricks of the trade and have ample time to buy and sell stocks, then this option can be considered. If not, let it better be the road not taken. Else, investing as a token into equities for the purpose of trading can be undertaken.
The next and the most important step is to protect yourself with ample insurance cover. Opt for a pure term cover and ensure that the cover is 5 times your annual salary. If you have Unit Linked Insurance Policies (Ulips) evaluate their performance and take note of their charges that occur every month. Compare their charges with the overall returns of the policy so that you can avert yourself from any negative returns before they actually arise. Buying a medical cover along with a critical illness cover can provide you comprehensive medical protection in case of any medical emergencies.