Investments are best kept simple. If you do not understand the product or option avoid it. Let this be your resolution for 2016 and beyond.
Believing that women have a wonderful temperament for saving and investing, this writing by a male may seem out of place. This article is therefore targeted at the many, who have deep knowledge of a variety of professions, but not investments. Of these there are many of both sexes.
Investments are best kept simple. If you do not understand the product or option avoid it. Let this be your resolution for 2016 and beyond. You will never regret it, as the main objectives of investing are, first, not to lose money and next to make your money grow. Lost opportunities do not hurt as much as lost money.
We like to define investments as postponing enjoying the benefits of current spending to grow the money not spent and derive greater enjoyment from it at a later date. These ‘investments’ may target specific future financial goals, or build assets for continuous utility.
This means setting aside money from current income for acquiring a home (for those who do not have an owned property), children’s education, vacations, purchase of a car and funding retirement.
The process of building wealth needs to start with safe guarding what exists. Do a check on your insurance. Take the help of your financial planner, or work the gaps in your financial future and goals yourself. Too much insurance will drain you and cost you the money that is needed for your other goals. The beginning of this check-up is with health.
Even as you care for your health (do keep that resolution to walk/ jog/ gym beyond the initial few days, please), ensure enough medical insurance as safeguard against any mishap. Take a family floater if you have a family.
Personal Accident is the cheapest insurance for the benefits it covers. It is also the least bought. Don’t let January pass by without it. The cover is capped at Rs 25 lakhs and costs about Rs. 3,500-4,000 a year.
Life and critical illness insurance is essential – to repeat too little, or too much is injurious to your financial well-being. Prepare a calendar for premium payments, and pay in time. Murphy’s Law is potent – disaster may strike just when your cover lapses. Ditto for keeping your motor insurance up to date.
Our favourites list of investment options is headed by the Public Provident Fund (PPF). PPF is a wonderful retirement tool in the long term, while saving taxes at present. The interest rate is reset each year based on the average benchmark government security (G-Sec) rate, or notified by the government. The current rate is 8.7 per cent and maximum investment per adult account is Rs 1.5 lakh a year.
The tenure of the account is 15/ 16 years (that is 15 years plus the year in which the account was opened). The account can be renewed indefinitely for additional 5 years at a time.
Investment of Rs 1.5 lakhs a year if the rate remains 8.7 per cent for 16 years builds up a corpus of about Rs 52 lakhs, Rs 88.6 lakhs on extension of 5 years and Rs 1.44 crores on a further 5 year extension! This comes with the security of a central government guarantee and is EEE (Exempt-Exempt-Exempt) for taxation! If you and every member of your family does not have a PPF account open it as a New Year gift to yourself – on January 1. Any money deposited in the account up to the 5th of the month earns returns. Deposits after the 6th earn only from the 1st of the following month.
Getting the best for your rupee is a good rule in investing. Get all extra money into a liquid account. These work almost as simply as savings bank accounts with a much better interest return.
Asset allocation is considered the foundation of effective wealth creation. Depending on your age allocate your savings to debt, equity and other assets. Plan to own your home, with the mortgage paid up before retirement (your banker will anyway ensure the latter).
It is vital to pay yourself – for your future. Have at least 25 per cent (yes, at least) of your income saved for your future. Besides the options like PPF, insurance, mortgage emi, make monthly deposits in debt and equity mutual funds in line with your asset allocation – through the Systematic Investment Plan (SIP) option. Along with the PPF, equities carefully purchased (mutual funds have professionals taking the care for you) are great for creating wealth. Invest regularly, and hold on to good investments.
Being a family man, I can assure you that the best investment a woman can ever make is on herself. You are the rock on which the family depends for stability, guidance and emotional support. Take care of yourself – you are the best of God’s creation.
(The author is CEO and Founder of Right Horizons)