Last Updated on
Determining the best investment plan from a large number of available options is a very difficult task. An option that suits the needs of others may not be appropriate for your specific requirements. Every person has different needs and priorities, and one size is not suitable for all.
Yet, the factors that help users choose amongst the different options are the same for almost every investor. These include good returns, capital security, and stability. Choosing the best investment plan is primarily driven by the personal preference of each individual investor.
Investment planning for long-term investors
Long-term investors understand the benefits of the compounding effect. Investing for a longer duration increases the opportunity to earn higher returns. This is because long-term investments are able to sustain against the volatility of the financial markets. In addition, long-term investors can assume higher risks because they have sufficient time to recover from any errors they may make in their investment decisions.
Investment planning for short-term investors
Short-term investors must not invest in avenues that undergo volatility. This is to prevent financial loss in case of negative returns at the time of redeeming their investments. Opting for investments that offer constant returns is most suitable for short-term investors. However, it is important to bear in mind that short-term investment avenues often provide lower returns.
What investors must do in 2016?
Investors are advised to continue saving to meet their financial goals and objectives. It is very crucial that you do not lose your focus; and that you invest as per your preferred asset allocation. For instance, if the prices of the equity investments in your portfolio have reduced due to a decrease in the stock markets, you may wish to sell some part of the fixed-income securities and increase your allocation to equities.
Let us now discuss a few smart tips to invest your money in 2016.
- Opening a national pension system (NPS) account
Any person considering saving more in this year should consider a NPS account. Under section 80 CCD (1b), investors can take advantage of NPS tax benefit for an additional amount of INR 50,000 per annum. In addition to the tax benefit, NPS investment is able to provide good returns due to the compounding effect of investing in the longer duration.
- Using an e-wallet
The Reserve Bank of India has granted 11 licenses to payment banks. As the popularity of e-wallets grows, users are advised to use these to avail of better discounts, cash-back offers, and other incentives. These discounts and other offers can effectively increase your annual savings.
- Invest in direct mutual funds
When you choose direct investments in mutual funds, it can reduce charges, which translate to higher returns. This difference is significantly higher for equity funds but because the reduction in the expense ratio for debt funds is not high, this difference margin is narrow. The liquid funds expense ratio is very low, which makes this difference almost negligible.
- Replace fixed deposits with debt funds
Although fixed deposits (FD) are safe, these avenues are tax-inefficient. A better alternative could be short-term debt funds, which have credit risk comparable to FDs. Short-term debt funds provide returns that are similar to FDs while the tax calculator shows more benefits, which increases the actual returns when these are held for at least 3 years.
Using different investment avenues is crucial for attaining financial stability in the short and long term. Seeking expert advice is recommended.