We human beings have more responsibilities in our life. One of the vital responsibilities is “Making Money”. Nearly half the population makes money in some way. Some people earn more and some less. But the question is “Do we all know the importance of saving our money for the future?”. Not all know very well. There are many ways to save, like starting from a piggy bank to becoming an “Angel Investor”. The main thing is keeping your money ideal without investing is a bad idea for your future. When money realizes that it is in good hands, it wants to stay and multiply in those hands. So let’s make our hands a good one with some sound investment knowledge and multiply our money.
Planning always travels with us throughout our life. We plan for our education, career, marriage, etc. Even if we want to go to a movie, we plan accordingly. Then only everything runs smoothly. Financial planning is just like other plans, if we plan our financial goals and act accordingly, our life will be in “Cloud Nine”. Financial planning is looking at your future goals and devising a plan in your present. Future goals vary among individuals. One person may plan for his retirement, and another person may plan for his child’s education. It may be short term like 2-3 years or long term like 10-20 years. Look at the scenario of the two individuals below and also their future financial goals.
Person 1 Name: RamDomain: Assitant Engineer – Electricity Board (Govt Employee)Annual Income: 7,20,000/-Financial goal: Children’s higher studies
Person 2 Name: SadhishDomain: Technical Head – Works in a Private FirmAnnual Income: 4,80,000/-Financial goal: Retirement plan
Comparing the two scenarios, Ram is not afraid of his retirement and lay-offs as his job is permanent and he will have his future secured(somewhat) with his retirement money and pension. But for scenario 2, his 1st financial goal would be to secure his future and earn a decent income in his old age. They choose investment plans as per their financial goals. Financial planning’s importance cannot be ignored. It is not just the above-said two scenarios. Financial planning is a lot more than that. There are more goals to be achieved through financial planning such as:
Retirement Planning: Retirement planning will make your old age happy. The best thing about retirement investment is, retirement planning will fight against Inflation. It will ensure that you’ve saved enough money to live the lifestyle you want in your retirement.
Education Funding Planning: If you have children or other dependents who wish to pursue a college degree, you may want to help them to pay for it. Financial planning can help make sure you are able to do so.
Tax Planning: Tax planning means analyzing your financial situation and future plans and making the best investments that will help you to pay the lowest taxes and make you save more from taxes.
Insurance Planning: Insurance planning is the process of carefully selecting insurance policies to financially protect yourself, your family members, assets, etc., against unexpected losses. It includes finding one or more insurance providers who can financially support you in a crisis.
Philanthropic Planning: It’s always nice to give something to people who need it or help a cause close to your heart. Financial planning can help you ensure you’re doing it efficiently and getting all the tax benefits you’re eligible for.
Holiday Planning: Yes, it is also a financial plan. You may have a dream destination to go to in your lifetime. A well-defined holiday investment plan will surely full fill your dream.
Venita van Caspel, a famous author about financial planning once said, “Financial planning is like navigation. If you know where you are and where you want to go, navigation isn’t such a great problem. It’s when you don’t know the two points that it’s difficult.” Design your financial goals and frame your investments.
Investment is the process of allocating your money, time, or resources to some form of assets and generating income, appreciation, or return in the future. It involves committing capital in the present in the hopes of receiving a greater amount of capital or benefits in the future. Investments can be made depending on the individual’s risk and financial factors. Some may be risk lovers, other may be risk aversive. Investors need to understand their goals, set an investment horizon, contemplate their understanding of risk, and understand the taxation of each of the investment products before choosing an investment option. They should never stick to just one investment option and should invest in multiple investment vehicles.
Having a diversified portfolio will help them spread their investment risk across multiple asset classes. Moreover, having an investment portfolio with more than one type of investment will help boost portfolio returns. It is essential to have a balanced asset allocation for earning optimal returns. Asset allocation varies with the age, investment goals, and risk tolerance of the investor. There are many types of investments available. Let us see some of them:
Investment in stocks is also called equity investment. It means buying shares of publicly listed companies. The shares are traded on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Investors can increase their profits as the value of equity investment rises. They can earn from the dividends of the company and from the increase in the company’s share value over a period of time. But there are more risks for your invested capital amount.
However, as a trade-off, the returns from equity investment can be much better. Indian Equities have generated upwards of 12% CAGR (compound annual growth rate) over the past 10 to 15 years. Interestingly looking at the long term, some well-known companies have yielded over 20% CAGR. It takes a great deal of research and prudence to understand the different types of investment opportunities and identify the right stocks to invest in. Identifying such investment opportunities requires skill, hard work, and patience.
Bonds also known as fixed-income instruments are issued by governments or companies to raise money from investors for specific projects. In return, the bond issuer promises to pay back the investment, with interest, over a certain period of maturity. Once the bond matures, the investor receives the original investment back. While most Bonds in India feature a fixed coupon rate, other types of bonds like floating-rate bonds and zero-coupon bonds have grown in popularity over the years.
Bonds investments yield much less return compared to equity investments but the capital safety is higher. For example, an average 10-year Indian Government Bond has a 7.108% yield. If you’re near retirement or already retired, you may not have the time to ride out stock market downturns, in which case bonds are a safer place for your money. Bonds too have risk factors. For instance, there is a credit risk that the bond issuer will default. There is also interest rate risk, where bond prices can fall if interest rates increase. So investing in bonds too needs more research and analysis just like stocks. But a sound bond investment knowledge will surely protect your investment capital and also yield income steadily.
Fixed deposit (FD) accounts have been a popular choice for saving money since it is not dependent on market variations and has a constant interest rate guaranteed at the time of maturity. Fixed deposits, which are offered by banks and non-banking financial organizations (NBFCs), are an excellent option to grow your funds while maintaining the highest level of safety. The rate of interest provided on FDs is much higher than that of a regular savings bank account.
Once the tenure of the deposit ends, investors can withdraw their investment. On the other hand, they have a choice of reinvesting their money for another term. For the year 2022, the average fixed deposit rate is around 5.05% – 5.35%. In the last 20 years, that is from 2000 to 2022, the average FD interest rate in India decreased from 10.50% to 5.35%. The financial market conditions, the RBI policies, and the country’s economic conditions accounted for this change.
A mutual fund is an investment vehicle where many investors pool their money to earn returns on their capital over a period. This corpus of funds is managed by an investment professional known as a fund manager or portfolio manager. It is his/her job to invest the corpus in different securities such as bonds, stocks, gold, and other assets and seek to provide potential returns. The gains (or losses) on the investment are shared collectively by the investors in proportion to their contribution to the fund.
The different types of investors in India can choose between equity funds, debt funds, and balanced funds depending on their financial goals and requirements. There are many companies that provide mutual fund investment services. Always go for an authorized mutual fund distributor to secure your money. People who have less time to analyze stocks and lack knowledge better choose mutual funds to invest for their future income.
Investing in real estate involves purchasing residential or commercial properties to allow your capital to appreciate or generate regular rental income. With such investment types, you get to enjoy a steady stream of income in the form of rent. Investors’ main aim in real estate is to sell the asset at a higher price in the future or generate regular income by way of rent. Another option is to make real estate investments without actually purchasing the property. This can be done by purchasing units of Real Estate Investment Trusts (REITs).
Real estate investing best suits investors with a long-term investment horizon. The prices of land and property do not fluctuate a lot in the short term. Hence investors with long-term goals should look at investing in real estate. Before investing in real estate, investors have to be prudent and do their research about the market prices and get the papers provided by the seller authenticated by legal experts.
India and Gold always have a great bonding. We see gold as a secure and prestigious investment too. Gold is preferred over other investments as it has high liquidity and inflation-beating capacity. Gold investment can be done in many forms like buying jewelry, coins, bars, gold exchange-traded funds, Gold funds, sovereign gold bond schemes, etc. The return from gold from 20 years has been 12%, whereas, in 15 and 10 years, it has been 10.3% and 7.5% respectively.
Interestingly, in one year, Gold has outperformed all asset classes with 14.2% returns compared to 12.9% from Indian equities and 9.5% from US equities as per “FundsIndia Wealth Conversation Report June 2023”. There are advantages and disadvantages to Gold investments. It won’t give you regular income like bonds. But it has its own excellent features like liquidity, and beating inflation. So in your diversified investments, allotting money for gold is not a bad idea.
“A purpose sets a direction for life, which means you don’t always have to ask what to do and why in every situation,” McAnnally-Linz says. When you defined your life’s goal and started your investment journey, you likely feel good about the way you are living your life. This gives you a sense of satisfaction and connectedness which can help you reach higher levels of well-being.
Powered by BetterDocs
You must be logged in to post a comment.