Investment refers to a commitment of funds to one or more assets that will be held over some future time period
Investment planning begins after you have taken into account your current and expected income level and have laid down your financial goals.
There is a huge difference between savings and investments. Anything not consumed today and saved for future use can be considered as savings. Almost all of us save money.
It is important to channel these savings into productive investment avenues. The two elements in investments are generation of income on periodic basis and / or growth in value over a period of time.
Why invest?
We all work for money. It is equally important to ensure that money works for us. We should inculcate the habit of reliance on a secondary source of income. We invest to improve our future welfare
Investment Fundamentals:
START EARLY
INVEST REGULARY
ENSURE HIGHER RETURNS ON YOUR INVESTMENTS
Example If Rs 3000 is invested every month for a period of 25 years, you will have an amount Rs. 3699964/- at the end of the 25 years ; A return of over 300% !!!!
This is the power of compounding, starting early and investing early.
The important aspects of investment planning are:
Capital Appreciation or Regular Income: People aiming at long-term goals focus on capital growth. A long-term investment will allow you to tide over rough times without changing your plans. Stocks, mutual funds and real estate represent investment options for capital growth. On the other hand, if you're investing to meet a short-term goal or to give you a regular flow of funds to complement your present salary, you should opt for income investments. These investments generate a regular flow of income in the form of dividends and interest and include fixed income, such as bonds, FD’s etc. While making a selection, you should consider the tax implications and associated risks.
Risk: Every investment option has a risk-return trade-off. Riskier the investments higher the returns. Investment planning should take into account an investor’s risk appetite, which dependents on your current income level, savings, lifestyle and responsibilities.
Determine your investment profile: This can be done by considering your risk appetite. There are mainly four types of investment profiles:
1. Conservative (Low Risk Tolerance): Such Profile invests in mainly (about 70%) of income assets, such as fixed interest and cash.
2. Balanced (Average Risk Tolerance): This refers to investor profile which has an equal emphasis on growth and income assets.
3. Growth (High Risk Tolerance): Such investor profiles invest mainly (up to 80%) of such as stocks and foreign currencies.
4. High Growth or Aggressive (Very High Risk Tolerance): This refers to investor profiles with more than 90% of the funds in growth investments.
Review your investment plan regularly: This helps in fine-tuning a portfolio to suit your current financial situation and a change in risk preference.
Benefits of Investment Planning
Investment planning helps you:
• Generate income and/or capital gains.
• Enhance your future wealth.
• Strengthen your investment portfolio.
• Save on Taxes
