45-year-old businessman, has bought 25 traditional insurance policies for
his retirement. These policies start maturing
every year from the time he turns 61 years till 85
years, thereby providing him sufficient income for his retirement.
Shweta Rao, a 36-year old school teacher has
invested ~3 lakh in an eight-year fixed deposit
scheme which offers 9 per cent interest. Rao was
sold on the idea that the FD amount would double in
time when her only son would begin his college education
and so hopes to use it for the same.
Aman Sood, a 29-year-old software professional,
has been investing a large part of his savings in
stocks every month since last year, as he intends to
buy his own house in the next two years and wants
funds to make the downpayment for the property.
While it is good that these people have a specific
goal and they have started investing for the same,
they have not selected the right investments for
their goals. While it is important to set goals in the
first place, it is equally important to estimate the
time frame in order to establish the year when you
would like to achieve your goal/s.
For example, buying a house is a goal, but buying
a house after three years is a specific goal. So once
your time frame is established the next critical factor
is selecting the right asset for investing. Given
below are a few guidelines which can help you invest
prudently to achieve your goals.
Short term goals: Short term period can range
from one month to up to three years. Usually, short
term goals can be buying a car or house, going on a
foreign vacation, house repairs, and so on. When
you are sure about these short term goals, it is better
to invest in safe instruments such as fixed deposits
and debt mutual funds for lumpsum investments.
For monthly investments debt mutual funds or
bank recurring deposits are better. If you happen to
fall in the 30 per cent tax bracket then debt mutual
funds will be most ideal as you can take advantage
of lower taxation and indexation benefits available
in these funds.
Stocks and equity mutual funds should be
avoided for short term goals due to their volatile
nature. Stock trading is a highly skilled activity
which requires time and regular study. Often people
buy stocks with the intention to earn very high
returns in the short term. But this could result in
loss on your investment.
Medium term goals: These are goals within the
time frame of three to seven years. Some of the
above mentioned goals can also fall in this category.
People in the lower tax slabs and looking for
highest safety can go with fixed deposits, while
those in higher tax brackets should invest in long
duration debt funds and balanced mutual funds with 70 per cent allocation
to debt funds and 30 per cent in balanced mutual funds.
Debt funds can comprise dynamic bond and income opportunities category
including fixed maturity plans (FMP).
Currently, even income and gilt funds,under the debt funds
category, offer good investment opportunities,since interest
rates are expected to fall. This will benefit these funds. But one must understand these funds well before
investing as one will need to exit these long duration
funds when interest rates bottom out.
Long term goals: Having a time horizon of more
than 7-10 years can be categorised as long term goal.
Ideally, goals such as children’s education, retirement,
and so on are long term goals and, therefore,
one should add equity in one’s portfolio as equity has
been the best performing asset over the long term.
Rather than buying investment oriented insurance
plans for long term goals one can create a diversified
portfolio of Public Provident Fund, stocks and
equity mutual funds. Don’t forget to add 5-10 per
cent of gold in your portfolio as it is a very good
hedge against inflation.
Systematic investment plans in equity mutual
funds will enable you to create a good corpus and
the compounding factor will come in play in your
portfolio. If you don’t have the knowledge to pick
stocks then stick with good performing equity
mutual funds.
For those in the higher income brackets and with
huge surpluses, property can also be a good option.
Seek expert opinion of a real estate consultant before
you finalise the property.
By categorising your goals as per time horizon
you can avoid any nasty surprises related to your
investments.
his retirement. These policies start maturing
every year from the time he turns 61 years till 85
years, thereby providing him sufficient income for his retirement.
Shweta Rao, a 36-year old school teacher has
invested ~3 lakh in an eight-year fixed deposit
scheme which offers 9 per cent interest. Rao was
sold on the idea that the FD amount would double in
time when her only son would begin his college education
and so hopes to use it for the same.
Aman Sood, a 29-year-old software professional,
has been investing a large part of his savings in
stocks every month since last year, as he intends to
buy his own house in the next two years and wants
funds to make the downpayment for the property.
While it is good that these people have a specific
goal and they have started investing for the same,
they have not selected the right investments for
their goals. While it is important to set goals in the
first place, it is equally important to estimate the
time frame in order to establish the year when you
would like to achieve your goal/s.
For example, buying a house is a goal, but buying
a house after three years is a specific goal. So once
your time frame is established the next critical factor
is selecting the right asset for investing. Given
below are a few guidelines which can help you invest
prudently to achieve your goals.
Short term goals: Short term period can range
from one month to up to three years. Usually, short
term goals can be buying a car or house, going on a
foreign vacation, house repairs, and so on. When
you are sure about these short term goals, it is better
to invest in safe instruments such as fixed deposits
and debt mutual funds for lumpsum investments.
For monthly investments debt mutual funds or
bank recurring deposits are better. If you happen to
fall in the 30 per cent tax bracket then debt mutual
funds will be most ideal as you can take advantage
of lower taxation and indexation benefits available
in these funds.
Stocks and equity mutual funds should be
avoided for short term goals due to their volatile
nature. Stock trading is a highly skilled activity
which requires time and regular study. Often people
buy stocks with the intention to earn very high
returns in the short term. But this could result in
loss on your investment.
Medium term goals: These are goals within the
time frame of three to seven years. Some of the
above mentioned goals can also fall in this category.
People in the lower tax slabs and looking for
highest safety can go with fixed deposits, while
those in higher tax brackets should invest in long
duration debt funds and balanced mutual funds with 70 per cent allocation
to debt funds and 30 per cent in balanced mutual funds.
Debt funds can comprise dynamic bond and income opportunities category
including fixed maturity plans (FMP).
Currently, even income and gilt funds,under the debt funds
category, offer good investment opportunities,since interest
rates are expected to fall. This will benefit these funds. But one must understand these funds well before
investing as one will need to exit these long duration
funds when interest rates bottom out.
Long term goals: Having a time horizon of more
than 7-10 years can be categorised as long term goal.
Ideally, goals such as children’s education, retirement,
and so on are long term goals and, therefore,
one should add equity in one’s portfolio as equity has
been the best performing asset over the long term.
Rather than buying investment oriented insurance
plans for long term goals one can create a diversified
portfolio of Public Provident Fund, stocks and
equity mutual funds. Don’t forget to add 5-10 per
cent of gold in your portfolio as it is a very good
hedge against inflation.
Systematic investment plans in equity mutual
funds will enable you to create a good corpus and
the compounding factor will come in play in your
portfolio. If you don’t have the knowledge to pick
stocks then stick with good performing equity
mutual funds.
For those in the higher income brackets and with
huge surpluses, property can also be a good option.
Seek expert opinion of a real estate consultant before
you finalise the property.
By categorising your goals as per time horizon
you can avoid any nasty surprises related to your
investments.
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