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Home >> Investments

Investment Plans

When you think of investments most of the times one thinks of bank Fixed deposits or post office schemes and many a times ends up buying and insurance scheme like ULIP. Generally most of the investments are done on ad hoc basis and are not done in a planned way. Most of the times I have seen investors who are above the age of 45 or in many cases retired people with some money looking fro avenues to generate regular monthly incomes. And more often that not young people are mis-sold ULIP excessively in the name of financial security and investment planning and older people are mi - sold equity investment. Which should exactly not happen.

Investments for Younger Individuals

Investments cycle for young individualsWhen you are young and 2-3 years into your carrer, that is the time when you should inculcate the habbit of investing and start contributing regularly towards long term financial goals like retirement. Equity investments which are generally sold to retired people are essentially meant for the younger ones, who by virtue of ad - hoc advise or on ad-hoc recomendations become extra catious. And is is also tru that at this stage one doesn't have much disposable income.  And that exactly is the reason why one should start with very samll amounts maybe even Rs 500/= a month and start an SIP into an equity mutual fund. As one grows have created some liabilities like a home loan or gets married and have responsibility to look after the family, before that one should add on a term plan. Buy yourself and your family  a mediclaim plan to cover any unforseen expenses. As you progress in life and have more money at disposal that is the time when you should look at asset allocation more serviously and explore more asset classes like commodities, Gold  properties etc. This is the time when you should start allocating your money resources towards you future financial goals like good higher education to your children, Also estimate future expenses on major events like marriage of your daughter, and start allocating resources more seriously towards your retirement. All this while you must ensure to buy yourself a term plan to protect these financial goals in case of any eventuality.

Investments for reitred people

Once retired one should focus on things which were more closer to your heart and shouldn't experiment much with your money. As by this time you are much wiser so this peace of advice is probaly there with you but many a times a shortfall in retirement corpus or relationship managers with greedy eyes get you into investments which are not meant for retired people. Mainly schemes like Govt of India Bonds, Post office savings schemes or Mutual Gund Bond Funds or hybrid funds with 15-20% exposure into equities are the most suitable investments for retired people.

Investment these days is much more than buying an insurance plan or investing in Post office savings schemes. It is much more than a mere speculation and is long term tool to create wealth. You have smart tools like SIPs; wherein you can start with very small amounts every month and build a large corpus in 15 - 20 years time frame. Investments is no magic or speculation where your money would double in 3 years, but simply choose investments which suit to your risk return profile and take a wise decision to build your long term corpus.

What are various types of investments?

Investments can broadly be classified as Real Assets and Financial Assets. These can further be segmented as below:

  • Debt or Fixed Income investments: Broadly all investments which have a fixed rate of interest (also called as the coupon) or are derived from such instruments are called as Debt or fixed income investments. There are various Fixed Income Investments as below:
    • Bank Fixed deposits, bonds debentures, post office schems and any other form of coupon bearing instrument, Govt of India Bonds, Govt of India Dated Securities, RBI Inflation Indexed Bonds, Tax Savings Bonds, Tax free Bonds etc.
    • Debt funds or bond funds or income funds investing in fixed income securities as listed in one of the above.
    • Company fixed deposits, corporate fixed deposits, corporate bonds etc 
  • Stocks / Equity or share market investments; You can either buy stocks directly from the market Or buy Mutual Fund units of Equity Mutual Funds
  • Properties / Real estate investments: these are generally very large ticket investments, but these days real estate oriented funds are also available or real estate funds are available which invest into real estate. You can take exposure into real estate through these funds
  • Commodities e.g. Gold, Silver, Diamond or other such forms of investments: Most of us are familiar with Ornamental value of metals like Gold silver etc but there is also increasing demand for such investments. You can also invest very small amounts into such commodities either through Exchange mechanism or through buying units of ETFs i.e. exchange traded funds.
  • Alternative Asset classes, offshore funds, Private equity funds, REITS (REal Estate investments trusts) Portfolio investments throuhg structured notes etc

Where to invest

Having decided to invest in lump sum or small amounts every month, next and very important question is where to invest? Which asset class to invest in? Many a times various questions like whom should I approach for investing? First time investors also have this doubt in mind. Sometimes we base our investment decisions on the basis of views expressed by some speakers on the TV, who haven’t studied your objective and are simply commenting on a given instrument.

Your investments are linked to your financial goals. There are short term goals and there are long term goals. Hence the answer would lie in identifying the goals and then plan your investments accordingly. Wherever you invest; you should always keep in mind that there is no short cut and each investment has a risk – return profile which should be commensurate with your Financial Goal.

When should one start investing?

All the financial experts would recommend you to start early, may be small amounts but regularly. Build a discipline of compulsory regular savings other than the deduction in the form of Provident Fund by your employer. Start with small amounts maybe in SIPs and build it up. Do I have enough to invest? there is never enough to start with, whatever small amounts you should start as young as possible. As a retail investor you can start with as small as Rs /= every month in mutual funds SIP, Bank recurring deposit, post office RD etc. Whatever you choose what you should start as soon as you can.

Smart Investments

Smart investing or tactical investments are those which are occasional opportunities which might arise out of market anomalies and one with the help of a financial expert can always allocate a part of the portfolio for such tactical investments.  E.g if the stock market is below its trading average you might want to allocate a higher percentage of the portfolio to equities or if the interest rates are very high and you expect them to come down you might want to take some exposure to Gilt Funds. These are simpler one; but more complex could be Dividend, bonus stock split or buy – back opportunities. These investments must be evaluated on the following parameters:

  •  What is the scope of the opportunity, time horizon and return expectations
  • Is this opportunity tax efficient and what is the post tax return
  • Can one understand the opportunity in a clearly defined terms
  • What is the downside to the opportunity
  • What are the exit options available

What Kind of research is required before investing?

It is always wise to do your home work before you start investing. However you cannot spend a considerable time and effort in doing research on the financial markets. You can contact a certified financial planner or AMFI registered mutual fund advisor to advise you on your investments.

Investment Planning

Investment planning is more than a simple asset allocation and is a part of one’s overall financial planning. However you can start with your investment planning by following the following points:

  • What do you want from your investments, higher returns is obviously not the answer. But what is your short term or long term financial goal that you want to achieve. E.g. if somebody wants to start for his retirement planning between the age of 25 to 35 and SIP in Equity mutual fund could be a good answer. However if someone has just retired and is looking to invest for his regular income post office MIS should be the right answer.
  • What is your time horizon? No investment is the best investment unless you define the time horizon that you want to invest for and then stay invested for that time period. Defining your time horizon is the next important thing.
  • Ask yourself a question, how much would my life be impacted if I don’t get the desired return on my investment or if I don’t get my money in time or if I had to postpone the decision.
  • The third question would define your risk – return profile and would assist you in deciding about the right investments for you.