Still Thinking to do Investment ....
When is the right time to invest?
Yesterday was the best day to start your investments. If you missed it, you should start your investments today. Delay it further only if you want to forgo some extra returns. Don't worry too much about getting everything right. If you are following the basic rules, you will definitely get it right. It is quite usual for you to feel a bit nervous when you are investing in unfamiliar instruments for the first time.
As said before, always try to match your investment horizon with your investment choice. This will help you eliminate unwanted choices, and identify the right ones. It will also save you a lot of headache later. As a rule, avoid risky investments like stocks, equity mutual funds for short-term goals. This is because equity can be extremely risky and volatile in the short-term. You should try to preserve your capital and try to secure stable returns for short-term needs. However, if you have time in hand, you can be a little adventurous and invest in equity. It will help you earn a few extra percentages. This is because equity has the potential to offer superior returns than any other asset class over a long period of time.
Don't forget to review your investments periodically. Investing and forgetting all about it is not a great strategy. You should regularly check how your investments have done over a period of time. Always compare the performance of a mutual fund of your choice with its peers and the relevant benchmark. If you find that the performance is not up to the mark, put it in a watch list. Track it for the next few months and try to find out the reason for its under performance. If you find reasons to believe that it is not going to bounce back again, sell it. There is no point in continuing with a bad investment because it robs you a chance to make more money elsewhere.
You should also sell your risky investments at least two years before your goal and park the proceeds in a safe avenue. This is to ensure that you have the money safely parked somewhere when you need it.
Why should I invest?
Why should you invest? The answer is very simple: to create wealth. And why would you want to create wealth? Well, to fund various financial goals you may have in your life like an expensive TV, foreign holiday, retirement, and so on.
The trouble is that most of us have a single source of income and there are various needs that are immediate, medium term and long term. If we move from one goal to the other with our accumulated savings, we would be left with almost nothing for our long-term goals. This is why it is important to not just keep money in the savings bank, but use it to make investments that will help you create wealth over a long period of time.
If you start your investments as early as possible, you will be in for a pleasant surprise. This is because time and compounding interests are a lethal combination that will multiply your wealth beyond your imagination over a long period of time.
If you are still not inspired enough to start your investment plan right away, here is a quick list of habits that stops you from being rich.
Waiting for the perfect plan: Spending months or years to come up with a fool-proof investment plan is not a great idea. There is no guarantee that your perfect plan indeed is going to be perfect. So, start right away.
Starting late: It is extremely difficult or almost impossible to catch up with someone who has started investing regularly much earlier. Even with a very large investment, you would find it difficult to catch up. Once again, start now.
Investing for short-term: Try to think beyond a few months or a year. You think of short-term investments only when you have short-term goals. Long-term goals need long-term investments. The basic rule: stick to debt investments for goals that are below three years. Invest in equity if your goal is five years away or longer.
Playing it safe: You can't build a large corpus with small investments in debt schemes. If you want anything substantial over inflation, you should invest in stocks. Get rid of the fear of stocks and invest in stocks for your long-term goals.
Looking for tips: Don't waste time looking for tips to get rich quick. Most of these tips would do exactly the opposite: rob you a chance of making money on your investments. If you have your basics right, shut out all the noise and stick to your plan. Take our word for it: you will be rich one day.
Trading is not investing: Getting in and out of investments, especially equity investments, is not a great idea. You will end up paying higher taxes on such frequent sale and purchases. It will also rob you a chance to make spectacular returns from your investments over a long period. Giving time to your investments is the key to creating wealth over a long period.
Where should I invest?
Broadly speaking, your investment choice should be guided by two things: investment horizon and risk appetite. Always remember, your short to medium-term goals should be funded by using safe or relatively-safer debt investments. This is because you cannot afford to lose money when you don't have much time in hand. Always invest in bank deposits and liquid funds for goals that have to be met within a few months or in a year. Use bank deposits and short-term debt schemes to take care of goals that have to be met within a couple of years. And for long-term goals, invest in equity. Long-term is five years or more.
Short-term investment options
Bank deposits: They are the safest and they also offer assured returns. However, the trouble with fixed deposits is that the interest is taxed. Use them only for keeping contingency funds, and money needed in the next few months to a year.
Company deposits: They offer slightly higher returns, but they are also a little more risky. Always stick to higher-rated deposits. Do not compromise on ratings for higher returns. Also, never put your entire investments in a single company, spread your investment across a few companies.
Debt schemes: They no longer have the tax advantage, but they may still offer slightly superior returns. However, use them carefully. Also, you should find out whether it is worth your while. This is because there won't be much difference in returns if the amount involved is small. It is extremely important that your investment horizon should match with the fund. For example, use liquid funds to park money for a few weeks or months. Ultra short-term funds are suitable to park money for a few months to a year. Short-term funds are ideal to park money for a two to three years.
Long-term investment options
Long-term debt schemes: If you have an investment horizon of more than three years, investments in debt schemes still make sense. This is because long-term capital gains from these schemes are taxed at 20 per cent with the indexation benefit, which is beneficial to those in the highest tax bracket.
Equity mutual funds: If you have an investment horizon of five years or longer, you should pick equity mutual fund schemes. If you are looking to save taxes under Section 80 C of the Income Tax Act, pick one or two Equity Linked Savings Scheme (ELSS) or tax planning schemes. If you are a conservative investor new to the market, pick one or two equity-oriented balanced schemes. Balanced schemes invest in a mix of equity (at least 65 per cent) and debt, and they are less volatile than pure equity schemes because the debt portion offers a cushion in times of volatility. Others can pick up one or two diversified equity schemes to fund their long-term needs.
Stocks: Investing directly in stocks can be extremely rewarding, but it is also equllay risky. You should attempt it only if you have a sound knowledge about the working of the stock market. You should also have enough time in hand to pick stocks and monitor them.
Tax saving options
Public Provident Fund: Ideal long-term tax saving option for conservative investors. The contributions to it qualify for tax deductions and interest earned is also tax free.
ELSS or Tax planning mutual funds: The best tax saving option for aggressive investors. They have a mandatory lock-in period of three years, but invest only if can wait for more if the market gets into a bad phase.
Sources:
Various publications
Disclaimer: The
information provided herein is based on publicly available information and
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cause actual events to differ materially from those expressed or implied in
such statements. The document is given for general and information purpose and
is neither an investment advice nor an offer to sell nor a solicitation. While
due care has been exercised while preparing this document, we do not warrant
the completeness or accuracy of the information. We will not accept any
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should rely on their investigations and take their own professional advice.
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