As the year comes to an end, it is time to look at the mistakes that people make while investing and what kind of astute financial planning is needed for the next year to get a grip on lost time and money.
Life and health insurance
It is critical to buy a term insurance cover early on in life. It protects your family’s lifestyle in case of early death of the breadwinner. For an endowment life insurance policy, one must identify the financial goals, children’s higher education, marriage, retirement and plan insurance accordingly. Choose an insurance plan depending upon the amount of monthly premium and how long you would like to pay for those.
Apart from life cover, it is pertinent to take a comprehensive family health insurance policy. Buying a policy when one is young and without any medical complications is always cost effective as the premium would be lower. It also provides tax benefits of up to R25,000 for self and family under Section 80D. Additional cover for parents can fetch higher tax deductions.
Start an SIP
A Systematic Investment Plan (SIP) can create wealth by investing small sums of money every month over a period of time. The biggest advantage of a SIP is that the investor doesn’t have to time the market. When an investor times the market, he usually misses out on the rally or enters the market at the wrong time—either the valuations have peaked or the markets are on the verge of declining. Investing every month ensures that one is invested during the highs and the lows.
Moreover, SIPs also have the advantage of compounding—one must start investing at an early age as the longer the investment horizon, bigger the benefits. If you start early, equity funds should constitute 80% of your portfolio as this asset class has been found to be the best bet for growing money over the long term. SIPs can be an ideal way to accumulate money for retirement. After retirement, one can withdraw the money through a systematic withdrawal plan.
Invest in PPF
Public Provident Fund (PPF) is one of the most popular investment options for individuals to meet long-term goals. Investment in PPF is tax-exempt at all stages and the current rate of interest in 8%. A resident Indian can open a PPF account and the subscriber can even open another account in the name of a minor, but the maximum investment limit will be R1.5 lakh by adding the balance in all accounts. Deposits made under PPF qualify for deduction from income under Section 80C of the I-T Act, where the ceiling is R1.5 lakh a year. The PPF account matures after 15 years and can be renewed every five years thereafter. Non-residents, however, cannot open a new account, but can continue their existing accounts till its maturity, without extensions.
Real estate investment
Do not bet too much of your money on real estate. Never take a loan much bigger than you can afford. Your monthly EMI should not be more than 50% of your total income. Always take a insurance cover with your home loan. Do not let the loan be a burden on your family in case anything happens to you. Or, if you do not plan to have a house loan cover, you must have a proper life insurance which shall provide for the EMIs and other borrowings in your absence.