We all invest in our lifetimes, be it anything. But do you plan and put forethought in defining your investment plan? Investing money is a crucial decision, but what is the need to plan it? If you observe your day-to-day, you can quickly tell the difference between planned and unplanned work. The task that you did with prudence will predictable and better results. However, unscheduled tasks are often haphazard and may not yield the results you were looking for. This is the reason you need planning, especially when it is about your investments. Let us understand the importance of best investment plan with an example.
Suppose that the market is performing well, and your friend told you to invest in a particular fund that made him 1.5x his investment in just a year. You may have gotten tempted and invested a large sum in equity mutual fund. However, an urgent need for money forced you to withdraw your investment, and due to market crash, the value of your money remains less than what you invested.
The first step in planning your investments is to figure out how much you need to invest in suit your financial objectives and profile. The best investment plan is a balance between short term investment options as well as long-term financial instruments that earn you high interest during the investment period. According to financial advisors, you must review your investments regularly and understand the tax liabilities on returns as well as capital gains to choose the right assets.
Let us now discuss why you need to select the right plan before investing in a financial instrument.
1. Return or Benefits – Choosing the Right Investment Plan
Your investment portfolio should be driven by a purpose. Defining your financial goals will allow you to set an agenda for your investment. You need to ask yourself why you are considering investing? Is it to build wealth or corpus of retirement funds? Are you trying to save for a home or your child’s education? Do you want to buy a car or a house? Depending on the goal, you will be able to choose the right combination of investment options to help you achieve that objective.
If you are looking for ways to fulfil long term goals such as your child’s marriage or your retirement funds, then what you need is a combination of insurance saving plans and equity mutual funds that can perform well over a period of time. For achieving short term goals, you can go for liquid mutual funds or short-term debt options.
Simply put, the best investment plan can be created by identifying the returns and benefits offered by these investment options that will help you pay for your financial goals at various life stages. Therefore, you must carefully assess these aspects before making investment decisions.
2. Period of Investment – What to Look for in Best Investment Plan
Staying invested for a while is a strategy that allows your money to work for you. Time is considered as a powerful tool to grow your wealth. You can also use the power of compounding to plan your long term goals, such as retirement.
Depending upon the timespan of your goals, such as long term or short term, you will be able to choose the right instruments that help you earn valuable returns and the yields on these returns can further generate returns, helping you create more wealth in a shorter period. The best investment plan with time-defined strategy will encourage you to set aside a fixed amount each month that you can pay for a certain period to boost your returns and meet your financial needs arising at the time of maturity period.
3. Tax Benefits
Your investment plan is not just a savings and wealth creation mechanism but also a veritable tool to save you taxes. To encourage people to save money, the government of India offers tax exemptions on premiums paid towards specific instruments and also provide tax-free maturity benefit. So make sure that your investment portfolio consists of financial instruments that allow you to real full benefits of tax exemptions and rebates.
4. Safety of Funds
Investment portfolios are subject to market risks. However, you can choose your investment products as per your tolerance for risk. For example, if you are a low-risk person and new to investments, then you can start with term insurance policies that offer you completely risk-free, tax-free investment option with an added benefit of security for your family and their financial future. For people open to slight investment risk can consider ULIPs.
These plans are a combination of insurance and investment component in which a portion of your premium is allocated towards life insurance policy, and the remaining premium is invested in debt, equity or balance of both funds as per your risk tolerance.
When you are creating an investment portfolio, you must ensure the safety of funds in the sense that you must invest your money as per your appetite for risk. There are dozen low risk or risk-free investment options that will yield you low, albeit safe return. If you are aiming for more profit, then you can invest in market-linked instruments that are riskier but offer higher returns.
Suggested Read: 5 Investment Tips To Save For Your Child’s Education
The best investment plan is a collection of financial instruments that are geared towards meeting your financial goals as per your risk tolerance, budget, and time. Don’t hesitate to take help from a financial advisor if you need a head start in developing the right portfolio.