There are plenty of options in the market to invest your hard-earned income but the choice you make must align with your long-term goals. If you are investing for the first time, you may tend to lean towards property or shares. A smarter idea will be to explore the range of investments. Investing in diverse instruments is a good option to reduce risk and increase returns.
Your choice of investment options depends on various factors such as:
- Time and effort, you are willing to put into forming your portfolio
- Your comfort level and knowledge of making investment decisions yourself
- If your investment decisions are on track with your finances and goals
Strategy for choosing the right investment portfolio
Understand your goals and needs
The first step is to understand what you are looking to gain out of your investment. Are you looking for quick short term gains or long term profits? You must understand your risk appetite. There are various risks that come with investment such as
- Your investment may not react positively to inflation
- The company whose stocks you hold may fall
- The share prices may fluctuate
The strategy here is to balance out the risks and invest smartly friending upon your personal situation and your capacity tobear losses.
Analyze the time framefor Investment
Each individual investor expects different outcomes from his/her investment. Your choice of investment will be based on how soon you need your returns back. Investment time frame will depend upon your goals.
Chart your investment Plan
Once your goals and needs are clear, the next step is to identify the investment avenues you wish to invest in.
The golden rule is to begin investing in low-risk options such as government securities, bonds, bank fixed deposits and so on.
Next, diversify your investment into medium risk options such as debt mutual funds, real estate and so on.
Once you are comfortable with low and medium risk investment returns, attempt more volatile investments such as equity mutual funds and stocks.
Look to Diversify
To improve your chances of returns and minimize risks, you must spread your funds across various investment options.
By investing in a diverse portfolio of mutual funds, stocks, bonds, government treasury and other money market instruments, you are assured of constant returns and your risks will relatively be lesser.
Monitor and review constantly
It is important to periodically keep track of the performance of your investments and note down any fluctuations.
Although you do not need to act on every price fluctuation, it is important to be aware.
To do this, you need to review your investments constantly and studyfinancial statements.
Avoid certain investments
You must try and stay away from speculative, high-risk investments with aggressive returns if you do not have the knowledge and the risk appetite for it.
Types of Assets where you can Invest your money
If you own a stock, it means that you own a share of that company. There are a wide variety of stocks based on the size of the company and its growth potential.
A bond is an amount an investor loans to a company in exchange of interest payments over a period of time.
Mutual funds consist of investing your funds into many different sectors such as equities, debt funds, and government bonds and so on.
Equity-based mutual funds or ELSS (Equity Linked Saving Scheme) are funds where the majority of the investment is diverted to equity or related instruments. ELSS carry some amount of risk but are ideal for saving money and securing long term gains.
Funds invested in ELSS also qualify for tax deduction under section 80C of the income tax act.
With ELSS tax benefit, both the maturity amount and the interest amounts are exempt from tax.
Debt mutual funds are safer and give steady returns with a low risk factor.
Bank investment options like Fixed Deposits are very secure and have long maturity periods of even 5 years. They give higher interest earnings than a conventional savings account.
Although there is no one right or wrong investment strategy, you must put aside some time and effort to study the market, analyse performance of each asset and take an informed decision. Your investment portfolio can fluctuate depending on your goals and financial feasibility.