Thursday, 7 August 2014

5 Ways to Invest for Maximum Returns & Minimum Risk

Just follow these 5 mantras to investing. You will be able to not only maximize your returns but also minimize your risks.

1) Start saving & investing now!
We will give you a simple example. This will make it crystal clear!


The sooner you start investing the lesser you will need to invest to collect the same corpus. This is because the power of compounding increases your returns considerably over time.

2) Invest a fixed amount in Equity Mutual Funds every month for long term goals

Of all the asset classes, only equity provides very high returns in the long term. Rather than investing directly into equities through self research which needs, time, resources and knowledge, one should invest in equity mutual funds. Investing fixed amount every month through SIP in Mutual Funds averages your costs & saves you from investing only at peaks.

The return table below shows the consistency of returns given by Equity Mutual Funds for last 15 years.

We can see that Equity Mutual Funds have consistently given returns of more than 15% for a long time.

3) Do not invest the money which you will need in short term into Equities

Equity markets are volatile in the short term. Also the returns on equity & that of fixed deposits is not very different in short term.

The table below explains the difference in returns of Equity & Debt. We have assumed post tax returns of equity to be 15% and of debt to be 8%.

We can see that equity does not give phenomenally high returns if kept for short term.

4) Save Taxes through ELSS, & not through NSC, PPF, Endowment Policies & ULIPs

The lock-in period for NSC, PPF and such other schemes is 5 years or more. There are various restrictions on liquidation of ULIPs & Endowment policies. Compared to this, ELSS have a lock in period of just 3 years & can be liquidated in a single day at the click of a button

If one compares the returns of PPF & HDFC Tax Saver Fund for last 15 years, one can see that whereas PPF gave 3.2 times invested amount, HDFC ELSS gave 19 times the invested amount.



5) Buy appropriate health insurance & life insurance

Health Insurance: You would not want your wealth to be eroded by unexpected & high medical expenditures, right? The simple solution is buy a health insurance for a nominal premium and cover that risk.

Life Insurance: Also, you would not want your family & dependents to be financially insecure due to your untimely death. You would need a cover of more than Rs 1 crores to cover their expenses for many years. Just buy a term insurance buy paying a small premium and be confident of your family’s future!

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