People think and react differently when there is talk about investing. Some do not even allot much time to think and plan their investments. Financial advisors say investment planning is as important as earning. It's basically putting your money to work or at places where you might need it someday. There are various investment instruments available in the markets and one should give a serious thought to planned and informed investment decision-making. You should look at various investment instruments according to your needs and allocate funds accordingly.
These are some of the broad categories of instruments available in the markets:
These are some of the broad categories of instruments available in the markets:
Tax-savings instruments
Taxes drain a significant portion of an individual's hard-earned money. Therefore, one should look at using all possible ways to save taxes, especially those in the higher tax bracket. There are provisions for investments in various instruments which qualify for tax rebates. For example, one can invest in PPF, National Savings Certificate or tax-saving bonds. Getting into the last quarter, investors should look at various schemes and reduce their tax liabilities.
Insurance instruments
The thumb rule regarding investments in insurance is that an investor should have an insurance cover of at least five times of his annual income. One should also look at a balance between term plans and endowment plans to optimise the funds outgo and risk cover. It is advisable to take insurance cover during the early part of life to ensure lesser premium and higher risk cover. Health insurance is another area which should be seriously considered by investors who do not have appropriate health cover for themselves and their family.
The thumb rule regarding investments in insurance is that an investor should have an insurance cover of at least five times of his annual income. One should also look at a balance between term plans and endowment plans to optimise the funds outgo and risk cover. It is advisable to take insurance cover during the early part of life to ensure lesser premium and higher risk cover. Health insurance is another area which should be seriously considered by investors who do not have appropriate health cover for themselves and their family.
Debt instruments
Debt-based instruments usually guarantee principal security. There are various classes of debt-based investment instruments available in the market. For example, deposit schemes (bank fixed deposits, post office deposits, company deposits), debt mutual funds, saving schemes (PPF, NSC) and liquid funds. Debt instruments should be part of every investor's investment portfolio. Inclusion of debt-based investment instruments provides stability to a portfolio and reduces the overall risk. However, the percentage allocation towards equity and debt-based instruments should depend on the risk profile of the investor and prevailing market conditions.
Equity-based instruments
There are various schemes and investment instruments available in the market in this category. There are two broad categories - direct investments in stocks or indirect investments by way of mutual funds. Those who have time and adequate understanding of the markets should look at the direct investment method. Others should look at investments through mutual funds. Investors should look at diversification by investing in many mutual funds and the investment decision should not be driven by past statistics only as they might be misleading at times.
Gold
Investments in commodities, especially gold, have found favour in recent times. The gold-based investments add another dimension to a portfolio. It acts as a debt instrument and usually provides good returns during uncertain economic conditions. The investments in gold can be through various gold funds or buying gold bars from the market. Buying gold ornaments should be treated as consumption rather than an investment.
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