Chapter 2: How to make a correct Investment Plan

 

(Image is for representative purpose only. Courtesy: Motilal Oswal)

In today’s day and age, people invest their savings into various market-linked instruments for a specific tenure and maximize the returns with minimum risk involved. The reasons for making investments are aplenty – some investors invest their money to avail of long-term financial security, whereas others need to maximize their savings to achieve their life goals.

Irrespective of the investment options you choose, the decision must be based on your risk appetite, financial goals, investment horizon, and liquidity needs. For this reason, smart investors are always keen to identify and invest in various types of savings plans, which enable them to multiply their money with minimum or no risk involved quickly.

Each of these investment plans carries returns and risks, which are directly proportional to each other. In other words, the higher the risk involved, the better will be the chances of returns. 

When we talk about investment options in India, we can broadly classify the available typs of investments into two categories – financial and non-financial. 

On one hand, the financial assets include market-linked securities, including mutual funds, and fixed income products such as Public Provident Fund (PPF) and Bank Fixed Deposits (FDs). To help you build an investment plan that matches your risk profile and investment needs with its potential to get profitable returns, here is an insight into the different types of investment options in India.

● Why Should You Invest?

Being salaried or even self-employed, you must realize that you cannot achieve your life goals by relying on your savings alone. Instead, it would help if you found ways to maximize your savings and build wealth that meets your and your family’s needs. To do this, you must invest these savings in an investment plan that helps you avail of high returns but with minimal or no risk involved.

On the other hand, if you choose not to invest, you may miss out on various opportunities to maximize your wealth-building potential and financial worth. If you invest your money wisely and on time, you can easily make significant gains throughout the investment tenure.

● How to Choose the Right Investment Plan?

To choose the right investment plan for yourself, you need to consider the following points -

• Review your financial needs and goals – both existing and future

• Calculate your investment timeline for each life goal

• Develop an investment strategy that comprises the right balance of insurance and investment policies

• Diversify your portfolio to include multiple investment plans and minimize the risk involved

• Be aware of the different charges levied under each investment schemes

• Periodically review your investments.

● What is an Investment Plan?

As the name suggests, investment plans are financial instruments, which help you create sustainable wealth for your future needs. There are various investment plans available nowadays that enable you to invest your savings systematically into different money-market products and help achieve your financial goals. These investment plans provide the much-desirable advantage of creating wealth through disciplined, long-term investments. 

Some of the most popular investment options today are –

Unit Linked Insurance Plans (ULIPs)

Public Provident Funds (PPF)

Monthly Income Plans

Mutual funds

Sukanya Samriddhi Account (SSY)

Senior Citizen Savings Scheme (SCSS)

Tax saving Fixed Deposits

What are the Different Types of Investments?

Each investment instrument carries a distinctive risk profile and potential for return generation. For each of these plans, their associated risk of investment can be described as the probability of the plan performing either below expectations or experiencing an irreparable loss of value.

Based on the risk associated, we can broadly classify different investment plans into three categories –

● Low-risk investments

● High-risk investments

● Medium-risk investments

Let us look at these categories in more detail –

1. Low-Risk Investments

Low-risk investment plans, essentially are those in which there are approximately zero risks involved. These low-risk investment plans usually provide consistent and reliable growth of value, with minimal losses. Such types of investment include –

Public Provident Fund (PPF)

Post Office Monthly Income Schemes

Senior Citizen Savings Scheme (SCSS)

Employee Provident Fund (EPF)

Sukanya Samriddhi Yojana

Tax Saving FDs

Sovereign Gold Bonds

Life Insurance

Bonds

2. High-Risk Investments

Investment plans categorized as high-risk are suitable for investors who wish to sustain long-term capital growth. While most of these high-risk investment plans are likely to incur fluctuations throughout the investment tenure, they provide ample opportunities to create substantial returns. These high-risk investment plans usually include –

• Direct equities

• Unit Linked Insurance Plans

• Mutual Funds

3. Medium Risk Investments

Investments plans classified as medium or moderate risk options not only provide opportunities t avail of diversified and balanced investment returns but also help you accept a certain level of market volatility. These medium-risk investment options, thus help diversify your investment portfolio by including a mix of equity and debt instruments, which then generates stable returns with minimal risks. Examples of these medium risk investment plans include :

• Hybrid debt-oriented funds

• Arbitrage funds

• Monthly Income Plans