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In the wake of the Euro zone crisis a lot of multinational companies are restructuring their businesses and trying to rationalise their strategies for the near future. Live today and Fight tomorrow is an approach adopted by many companies irrespective of their size. Salaried people today feel the threat of job security and craving for an extra source of income at the same time. The job security which once prevailed around us is no longer there today. One feels a strong need for building an alternate skill or profession which has the potential to add a parallel income or serve as a backup. It is somewhat easier to maintain a desirable standard of living if both the spouses are earning instead of a sole breadwinner. Moreover, an additional source of income is also useful to keep up with the increasing standard of living and move up the social ladder. Investments then, gain importance more than ever.
One can accumulate monetary wealth only if the investments are made in such a way that they generate as much income to take care of his/her liabilities. When the returns from your investments start paying off your liabilities then you have earned yourself the right to dream about your retirement.
There are many investment options available in the market with varying returns based on the risk and also for different durations such as PPF, Fixed Deposits, Life Insurance Plans, Mutual Funds, Bonds, Shares, Debentures, etc. A regular and consistent approach of investments is the only way to a secure a care-free future. The old saying that we should not put all our eggs in one basket makes a lot of sense. Every financial product has its share of ups and downs and if we are skewed towards a single financial instrument then our investments also run the risk of being impacted with market uncertainties. So stick to this mantra of a diversified portfolio – Always!
Life Insurance Policies – Life insurance companies offer pure risk cover plans and savings plan. Pure risk plans also known as Term plans are a must. After you have taken an adequate term insurance cover, you can look at some savings or investment insurance options. Savings plans give you planned returns to take care of the financial needs at different stages in your life. A balanced portfolio containing Debt (low risk - low returns) and Equity (high risk - high returns) products is one of the best ways to plan your investment. One can take risks and invest in equities in the early years of life (e.g. Age 18 to 35) and park your money in debt portfolio in the later stages of life (Age 36 to 58).
Public Provident Fund (PPF) is a regular source of long-term savings which offers tax benefits too. Starting a PPF account early in your life can be of great advantage as it helps to reap the larger benefits – Twice as much. E.g. If you open a PPF account at the age of 21 then it matures at the age of 35; A second account at the age of 36 will mature at the age of 51. PPF is a great example of how your money can give you compounding benefits. And the best part is that you do not need to keep putting in large sums of money to keep the account running.
Mutual Funds are collective investment schemes which harness the power of investing in bulk from a pool of money collected from many investors. Few of the advantages of investing in a mutual fund are:
- Increased diversification,
- Daily liquidity,
- Professionally managed investments,
- Access to investment venues that are usually available only to large investors
- Government regulated
A good way to start investing in a mutual fund is by starting a Systematic Investment Plan (SIP) and investing small sums of money on a monthly basis. The law of averages applies excellently in SIP and the units accumulated have the potential to deliver high returns over a period of time.
Infrastructure bonds that were introduced a couple of years back by the Indian Government is a handy instrument to save tax to the extent of Rs.20,000/-. Many people hesitate to block their money for 5 to 10 years to merely enjoy the tax benefit but a better way of looking at it is like that of an enforced saving.
It’s extremely tempting to write about investing in stocks, real estate, gold, commodities, forex, derivatives and many other financial products which perform really well in the short-term as well as long-term but the idea of this article is to encourage diversification of investments in a smooth and risk-free manner. Once the underlying idea is clear, each one can explore any investment options which appear lucrative.
Liquidity of investments is as important as longevity of investments and it assumes further importance when a lot of professional uncertainty surrounds us. It is more of a duty to make your money earn for you and not some wishful thinking given the painstaking effort which goes into earning the money.