With competing financial priorities, it is critical for us to find investment instruments that will help get returns to achieve multiple financial goals. While there are plenty of investment avenues available for investors, including, term insurance and savings plans, finding an investment option that suits your needs the best is the most important step in ensuring your financial goals are met.
One of the first things you should do in order to understand what investment option works best for you is to devise a medium and long term financial plan. Here you should estimate your income over the next few years and how much you would expect it to grow given the changes in your job and the expected increase in salary. Now, you need to list down all your long term expected expenses, these could include paying for your house, car, child’s education, wedding amongst others. You must also account for any medium-term big expenses, such as house renovation, children’s fees, amongst others. Once you have estimated your costs over the next few years, you will be able to see how much of this can be covered by the income you have, and accordingly, have an idea of how much returns you need on your investment and in how much time to achieve your financial goals.
Your financial plan/goals and your income will influence one of the most important factors that affect your investment decisions: your risk taking appetite. While certain investment options such as stocks, equity-linked saving schemes (ELSS) and unit-linked insurance plans (ULIPs) are market driven, others, such as fixed deposits, government bonds and the national pension scheme (NPS) give you a fixed rate of return regardless of how the market is performing. Needless to say, non-market linked investments give you a lower rate of return as there is little to no risk attached to such investments. If you have just started out investing and are in your 20s or early 30s, you have a long time to save up for most financial goals. This means that you can afford to take risks and invest long-term in the market. However, if you have huge financial obligations coming up soon or are near retirement, it would be advisable to focus on taking fewer risks and invest in instruments that give you guaranteed returns.
After consolidating your financial goals and assessing your risk appetite, it is time to evaluate which investment options will work the best for you. Undoubtedly, one of the most common investment avenues are insurance policies, in particular, term insurance policies as they offer protection and coverage, with low rates of premium that do not burn a hole in your wallet. Essentially, a term insurance plan is a purely protection-based insurance plan, wherein the case of the death of the policyholder the nominee receives the entire sum assured of the policy, in either a lump sum or in the form of monthly payouts as decided upon by the policyholder. Term plans offer the perfect avenue of investment with their low rates of premiums, tax benefits, wide coverage and uncomplicated policy structure.
Another option that investors often go for, in order to invest in the market in the long term are savings plans, which help you save tax, while also offering you returns and protection. While the structure and benefits offered by savings plans differ from policy to policy, including their ability to provide insurance coverage, bonuses, maturity benefit, investment horizon, they are designed for investors that want to invest in the long term.
Regardless of which investment avenue you think suits your financial goals and risk appetite the best, it is critical to review your overall financial plan and investments from time to time and ensure they are on track. Your ability to take risks and your income invariably changes from time to time due to your family status, lifestyle, economic climate, market risks amongst others, and hence, you will have to update your financial plan and investment plan in accordance with the same. Investment and financial management require time and attention and you should carefully review and reanalyze to ensure you are on the path to financial security.
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