Thursday, 24 July 2014

A complete guide on How to invest smartly

How to invest, How much to invest & Where to invest?

These are some of the basic questions which come to the mind of any fresher joining the workforce. The answers to these questions elude most of the professionals with experience as well.

We, at, believe in a very simple yet effective philosophy of investing. We believe in goal based investing rather than haphazard investing. We feel this provides more stability, security and optimum financial growth.

Following are the steps to be followed by a smart investor for optimum financial growth as well as for financial stability:

1. Find out your investible surplus

Document your monthly take-home salary for last 6 months & take an average of that. Find out monthly average expenses on rent, expected EMI, household expenses and any other expenses.

The difference will provide you with an investible surplus.

2. Purchase adequate insurance.

Insurance planning comes before investment planning. Because an unfortunate event may befall you anytime and you should be prepared for it as soon as possible.

The major financial risks faced are unexpected health expenses, unfortunate disability due to accident or your untimely unfortunate death.

Click here to calculate your Life Insurance Requirement.
Click here to read more on Life Insurance.
Click here to read more on Health Insurance.

3. Maintain a contingency Fund

You should have a fund equal to 4 to 6 months of salary at any time in savings account or Liquid mutual funds. You might need these funds for any emergency. So these funds should be in liquid and non-risky investments. Before collecting funds for any other goal, you should collect this.

4. Decide on top financial goals for short term, mid term & long term

Decide on the financial goals, the funds required in today’s value & purchase age. Find out the requirements for short term (<3 years), mid-term (3 to 8 years) & long term (>8 years).

The goal of retirement planning should be given very high priority. Majority of Indians are financially insecure at the time of their retirement due to inappropriate financial planning.

We will explain the power of compounding now.

Rs 1 Lakhs invested today at 15%, will give you Rs 66 Lakhs after 30 years; but if you invest for 35 years you will get Rs 1.3 crores.

Rs 5000 per month invested for 30 years at 15%, you will give you Rs 2.8 crores; but if you invest for 35 years, you will get Rs 5.7 crores.

The sooner you start, a lot bigger will be your corpus. So invest now. Don’t delay in saving for your retirement & other long term goals.

But you should remember that in short term, equity markets are very volatile and the returns are not very high. So avoid equity investments for short term goals.

5. Decide on appropriate asset allocation & expected returns for each time period

Majority of people invest their monthly savings haphazardly into direct equity or into fixed deposits. Both of these strategies can backfire and lead to huge losses. Click here to know why.

We recommend this asset allocation:

Time Period
Asset Allocation
Expected Returns
Short Term (<3 years)
Only Fixed Deposits or Debt Mutual Funds
7 to 8%
Mid Term (3 to 8 years)
According to risk appetite
12 to 15%
Long Term (>8 years)
According to risk appetite , but preferably invest only in Equities

Click here to know your Asset Allocation based on your risk appetite.

6. Prepare a monthly investment plan to fulfil important goals

You should now calculate a monthly investment plan for each goal. Be sure to not overstretch you savings.

You need not work out the entire maths in an excel sheet. We have tools just for that.

Click here to use our Retirement Planning calculator.

Click here to use of Goal Planning Tool

7. Optimize investments from taxation aspect, convenience & financial growth

Avoid investing into shares directly. You should prefer Equity Mutual Funds as they offer many advantages. Click here to understand why investing in Equity Mutual Funds is one of the best ways to invest in share markets.

Invest idle cash in liquid funds. Liquid funds give far higher returns than savings account. Click here to know why.

Debt Mutual Funds offer many tax advantages if invested in for 3 years. One should prefer Debt Mutual Funds over Fixed Deposits for investments above 3 years. Click here to know why.

Investment in ELSS are covered under section 80C upto Rs 1.5 lakhs. ELSS are diversified equity mutual funds which have given consistently high returns historically. They have the least lock-in period of all tax saving investments – 3 years.

Investments into life insurance & health insurance are also tax deductible. One should make use of these deductions.

Click here to understand all the Tax saving deductions.

Click here to do your Tax Planning using our Tax Planning Calculator.

8. Continuously monitor your progress:

You should monitor your portfolio once in six months to make sure your investments are in line with your goals.

Want us to handle your complete planning? Click here, fill the form and we will do it for you.


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