Smart Investing: Five steps to your investment goals | The Financial Express

Smart Investing: Five steps to your investment goals

Chalk out a strategy to meet your financial goals, minimise risks and know the tax implications before deciding on the investment

Smart Investing: Five steps to your investment goals
When it comes to investments, higher the risks, higher the returns. This will help build an optimum portfolio that suits your investment style.

With so many investment instruments ranging from stocks to National Pension System to fixed deposits, here are a few tips that can help you succeed in your investment objectives.

Preparation is the key
A well-prepared investor has a better chance of success than the ill-prepared one. “If you do not understand complex financial terms, do not hesitate to seek the advice of a financial advisor. Before investing, prepare a financial roadmap highlighting your financial goals and investments you are willing to make. Once you prepare a financial roadmap, stick to it, no matter what. This is also an opportunity to explore various financial instruments and the risk rewards they provide,” says Abhinav Angirish, founder, Investonline.in.

Assessing risk-tolerance is important
Before investing, assess your risk tolerance. Even the safest investment has some risks associated with it. By assessing risk tolerance, you get an idea about the risk you are willing to take. When it comes to investments, higher the risks, higher the returns. This will help build an optimum portfolio that suits your investment style.

Aim for optimum asset allocation
Asset allocation helps you diversify your portfolio. By investing across asset classes you ensure that even if one investment doesn’t perform, the others will continue to earn money for you. For example, if you are investing in PPF/NPS for retirement, you can invest in equity mutual funds for other life goals. A good asset allocation plan helps you avoid the pitfalls of investing.

Also Read: Why you should invest in international funds and how to do it

Never forget emergency cash
Always plan for emergencies in advance. When emergencies arise you will have a harder time making ends meet. In such a case, either you will be forced to liquidate your long-term investments or borrow money at a very high cost. By planning for emergencies you can stay on top of your financial obligations.

Know the taxes
Taxes can eat up the returns. For example, the returns on fixed deposits are taxed as per the tax slab of the investor. “Therefore, it is important to know about tax implications before investing. While PPF/NPS are tax-free, there are limitations as to how much you can invest in them. Mutual fund schemes like Equity Linked Savings Scheme (ELSS) help you save tax while generating decent returns. These funds have delivered returns in the range of 22%-28% in three years. Debt mutual funds also offer indexation benefits that can lower your taxes,” informs Angirish.

However, note that investing is an art. Even if you are able to grasp complex financial jargon, it is still better to seek the guidance of a qualified financial planner to avoid mistakes. The mutual fund universe has exploded exponentially in the past two decades and for someone who is just starting his investing journey, it might seem intimidating. More than passion, you need to cultivate discipline and also chalk out a strategy to meet your financial goals and minimize risks. Finally, do not get driven by greed and fear, and develop a detached attitude while investing in stocks or mutual funds.

Portfolio plan
* Before investing, assess your risk tolerance so as to build an optimal investment portfolio
* By planning for emergencies you can stay on top of your financial obligations
* Invest money in various asset classes such that even if one investment doesn’t perform, others will continue to earn money for you

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