New Year resolutions don’t last long. Especially, if they have to do with moolah. But there’s something in the January air that veritably invites you to plan, set goals, both short term and long term.
While the right investment plan is customised to fit the investor’s age, employment status, financial goals, time horizon and risk appetite, we have put together a general financial code, listing ideal investment avenues for TOI readers.
Slow and steady
Systematic Investment Plans (SIPs) are an easy option to salt away money regularly without feeling the pinch. Pick two to three good funds and invest every month. SIPs do away with the need or effort to time the market, and their biggest advantage is diversification, allowing investment in all major industries and companies. You can also start small, since fund houses let you buy units with small amounts (starting at Rs 500 per month).
Tax-saving mutual funds (Equity Linked Savings Schemes or ELSS) are ideal for those looking to save on tax. ELSS have performed better as compared to traditional instruments such as life insurance policies, National Savings Certificate and Public Provident Fund. They also have a shorter lock-in period (three years) as compared to the six-year and 15-year lock-in for NSC and PPF respectively. The best part? They offer higher returns (between 15 and 18 per cent per annum) in the long run.
Property is a great investment – at any time. It always makes sense to cut out the rental outgo. If you can afford an additional EMI, try putting money in a small plot or piece of land. It could even be in a tier-1 or 2 town. The installment might seem like a heavy cross to bear right now, but it won’t a few years later. And we all know this: If you rent it out, a portion of the rent can go towards the EMI.
In these torrid financial times, gold remains an important investment option. The yellow metal remains a safe bet. After all, even countries hoard gold during crisis. In the future, political tensions, volatile equity markets and constraints on supply are likely to push up prices. But stay away from jewellery; pick up gold funds or coins/biscuits.
Play the stock market
This one’s a bit tricky, especially if you’re at sea when it comes to shares. Seek advice and invest only in blue chips; look for steady earnings and robust balance sheets. Stay invested in the market and market-related instruments only for the long term. If you get it right, the stock market offers the chance to make extremely high returns.
Most advisors say investing in Public Provident Fund (PPF) is one of the ways to build longterm wealth. Apart from being a tax-saving instrument, PPF allows you to earn assured and attractive returns that are taxfree. A PPF account can be opened in any post office and authorised banks. Any amount between Rs 500 and Rs 1 lakh can be invested each year, either in your name or on behalf of a minor. The tenure is fixed at 15 years, but can be extended for a further five years. Loans are possible, and so are premature withdrawals after the end of the fifth year.
If you have a dependent, you need a life insurance policy. If something should happen to you, this will ensure that your family is financially provided for. Another must is sufficient health cover. Check the new health insurance schemes that cover critical illnesses and make a decision based on your need.