We belong to a conservative culture where saving habits are built into our DNA. As a country, we prefer to save than to spend, unlike developed economies that are driven by demand-driven spending from their national economies. Saving comes naturally and we all save for the future in our own way. Whether you’re putting our savings in a bank FD or contributing to a PPF or reducing expenses to administer a home loan EMI, all we do is save. What’s going on growing your money to something beyond savings that, at best, can provide you with a return of 8% to 9%, half of which is absorbed by inflation.
Is when savings and investment come together to help you build wealth and have a sense of financial security. Having a job is not enough to feel financially secure because what is left of your salary after paying all the monthly expenses is not enough to pay the future global expenses that will expire over time. Salary and salary savings cannot cover important life expenses such as children’s higher education, their weddings, health care expenses in old age, and the expenses of the long retirement phase of your life, when the salary would no longer cushion it. It is imperative to put your savings in investment avenues where they can multiply in the long term.
You must understand the difference between short-term and long-term investment decisions to take a holistic approach towards creating financial security and wealth.
- Safe short-term goals
- Don’t let your money sit idle in the bank
- Invest in balanced mutual funds for medium-term goals
- Invest in long-term equity-oriented options
- Be flexible, monitor and rebalance your portfolio periodically
- Seek professional advice
Short-term goals are generally defined as milestones that you want to achieve in the next 1-3 years. If there are some short-term goals that you can’t afford to lose, go for savings options like FD bank or, better yet, invest in suitable debt mutual funds if you’re comfortable with mutual funds. Fixed income mutual funds or debt funds are safer than equity-oriented mutual funds and have the potential to give you a higher return than bank DFs. But you should do your research or enlist the help of a Investment advisor to choose the right funds that go well with your financial goal and your ability to take risks.
Most people simply leave their money in their savings account, even when the amount is significantly higher than what is required to manage daily expenses. Don’t let excess cash sit in a savings deposit. Rather invest it in a liquid mutual fund that can potentially offer you a higher return than the bank would offer you. Liquid funds are convenient to trade as they have no entry and exit charges and redemption money is available to you the next business day when you want to sell your share of the fund. Liquid funds are best suited for investing excess cash for 1 to 90 days and are the least volatile of all mutual funds.
If there are some requirements that you expect to expire in the next 3-5 years, choosing a balanced mutual fund or a suitable hybrid mutual fund might be a good option. Balanced funds that are a kind of hybrid mutual fund Invest in a combination of equity and debt securities. They capture the characteristics of equity and debt funds while offering a moderate risk-return proposition to their investors that is suitable for those who prefer to play safe while looking for some upside potential from equities.
When a financial goal If it’s a long time away, let’s say your retirement life will begin in 15 years or your daughter’s higher education will expire in 7 years, the best option would be a well-diversified equity fund. Equity funds are best suited for long-term investments beyond 5 years, as stocks are prone to higher volatility in the short term, but can offer good long-term returns. Invest wisely in a few equity funds that suit your personality – that is, your willingness to take risk. You might also consider investing directly in stocks, but mutual funds are better suited for those who don’t like to take risks with stocks. Always try to understand everything about mutual fund risk before investing in them.
Once you have invested your money in various mutual funds, FD, stocks, ULIP, PPF, etc. the work is half done. You should monitor your portfolio regularly and make changes if necessary. A rebalancing is required to reflect any changes in your life circumstances. For example, you change the job from a multinational to a new company where the risks are higher. In such a situation, your portfolio’s exposure to stocks should be reduced as your human capital is now invested in high-risk stocks. Working for startups is as good as owning high-risk stocks.
It is best to seek the professional advice of an investment advisor or ask for help from mutual fund dealers to overcome paperwork and transaction requirements. Tea Investment advisor will perform your risk profile and conduct a suitability analysis before recommending any investment plan. It may be worth taking this help when you are putting your hard-earned money into a long-term plan. Take your time to understand