Published on November 22nd, 2019
Investing in the correct investment product at the right time is very important. If you keep on spending money without in-depth research, you may end up in a situation of loss.
You should have a clear objective of any investment you make to choose the best investment plans. Many of us invest in the product based on the advice of our friends or relatives. It may not be the correct approach for financing.
You should begin investing only after proper planning. Ideally, you should consult a financial planner or expert before making any investment.
However, if you can’t afford fees of the financial planner, here are some factors to consider before investing in any commercial product:
1. Assess Your Personal Needs
Before you make any investing decision, you need to take an honest look at your entire financial situation — especially if you’ve never made an investment plan before.
The first step to a successful investment decision is figuring out your future goals and risk tolerance. There is no guarantee on the returns from your investments.
However, if you understand the logic behind saving and investing and follow through with an effective plan, you should be able to gain financial security over the years and enjoy the benefits of managing your money by selecting the best investment plans.
2. Risk Tolerance
There is a direct connection between the risk associated with an investment and the returns it provides. Generally, the higher the risk, the higher is the potential return.
However, different investors have unique risk-taking abilities, according to their financial condition and preferences.
It is essential to assess the level of risk you can make a wise decision and select the best investment plan. Once you know your risk-taking ability, you can choose from a variety of options available for that risk type.
For instance, high-risk investments include equity investments, while moderate and low-risk instruments include fixed-income investment options like fixed deposits.
Your age is one of the most important factors to consider while choosing the best investment plan for yourself.
When it comes to investing, being young is an advantage, as you have more disposable income, not many responsibilities, higher risk-taking ability, and can wait for a more extended period for an investment to bear fruits.
As you grow older, you will have to take into account different factors like responsibilities and retirement planning.
Also, you will have lesser time for your investments to provide returns. Hence, your ideal investment instruments change according to your age.
4. Investment Objective
Before you put money in any instrument, it is essential to determine your investment objective. If your goal is keeping your money safe, you can choose investment options like fixed deposits or bonds that may provide moderate returns.
However, if you are looking for higher profits and do not mind taking some risk, you can invest in shares or mutual funds.
5. Understanding Of Financial Products
A variety of financial products provide many benefits today; however, they are complicated. It is crucial to understand these products before adding them to your portfolio.
Knowing the intricacies of the products will ensure that they not only meet your needs but also provide higher profitability. For instance, if you are looking for only life cover, a term life insurance, which comes at a lower cost, is sufficient.
However, if you are looking for returns with the coverage, you need money-back or endowment policies, which cost a little more.
Liquidity is another essential factor you should look for before choosing the best investment plan for yourself.
Liquidity means the degree to which you can sell your investment in the market, to obtain cash when required.
So, if you are sure that you will need money in the near term you should invest your money in the highly liquid asset.
It is also vital to build an emergency fund before investing in any product. Setting aside emergency fund is very crucial as it will help you not to disturb your investment in case of need.
While choosing the best investment plans, it is crucial to understand how the returns will be taxed.
If the returns on the investment you make are taxable, the scope to create wealth over a long-term gets constrained. Most tax-saving investments work under Section 80C of the Income Tax Act.
As we all have different goals, it is critical to align them with the investments you make. Popular tax-saving investments in India by reputable insurers such as Max Life Insurance include:
- Health Insurance
- Single-Premium Life Insurance
- Ulip plans