Smart investment tips

8 Common Investment Rules

 

 

Rule No.1: Determining the right asset allocation is the most important decision with respect to your investments.

 

          How to plan for your goal

 

Ø     Note down what you are saving for

Ø     The number of years/months you have to reach you goal

Ø     How much you would need to achieve your goal

Ø     If your goal a one-time payment(child's marriage, holiday) or if it extends over a number of years(child's education, retirement)

Ø     How much you can contribute towards it right now

Ø     How much you can contribute every month to reach the desired amount

 

Rule No. 2: Start early and stay the course. Don't wait for tomorrow.

 

          How to start saving

 

v    Decide on how much you can save every month for the next year

v    However small the amount, start now

v    If you are looking at an equity investment, opt for a SIP in a mutual fund

v    If you are looking at a fixed return investment, then you can consider a recurring bank or post office deposit

v    If you have no investments at all and are just starting out, you could do a SIP in mutual fund

v    Any additional income that comes in by way of a gift, inheritance, tax refund or bonus should immediately be invested or used to clear debt

 

Rule No. 3: Select your investment wisely and invest regularly.

 

          How to invest smartly

 

ü     A SIP is a tool for long-term investments

ü     Fund selection is of importance

ü     Select funds that are from different AMCs and different styles

ü     If it is a small amount, start with one fund, if it is larger amount spread to more funds

 

Rule No. 4: Diversify smartly

 

          How to do it

 

§        Decide on your debt: equity allocation

§        Avoid too many funds from the same AMC

§        Avoid too many funds handled by the same fund manager

§        Don't go heavy on one investing style

§        Your core holdings must be diversified equity funds, not sector or thematic funds

§        Ensure that there is no strong tilt towards one sector or stock

§        Ensure that you are not too heavy on mid- and small-caps

 

Rule No. 5: Portfolio rebalancing is an essential maintenance function that will ensure your portfolio stays on track and allows you to stick to your game plan

 

          How to rebalance your portfolio

         

v    Make note of your targeted asset allocation

v    Look at the big picture and see by how much the broad allocation has diverted from the targeted amount

v    Look at individual stock allocation

v    Look at individual sector allocation

v    Look at thematic exposure

v    Either you will have to sell some assets in which you are overexposed or buy those in which you are underexposed

 

 

Rule No. 6: Plan your investments in a way that you end up paying the least amount of tax that is due under the law.

 

          How to plan for tax saving investments under Section 80C

 

    Mutual fund Equity Linked Saving Schemes(ELSS)

    Employee's Provident Fund

    Public Provident Fund

    National Savings Certificate

    Bank Term Deposits

    Senior Citizens Savings Scheme

    Post Office Time Deposits

 

Rule No. 7: Proper insurance planning is paramount.

 

          How to get smartly insured

 

o       Do not mix insurance with investment

o       For life insurance purposes, opt for a basic term policy

o       Work out how much your dependents will need every month to survive with out your income. Insure yourself for an amount which will give a return that matches their requirements

o       Keep reviewing your circumstances: As the number of dependents increase, increase your coverage

o       Consider medical insurance if your company does not offer it

o       Claim deduction for life insurance premiums under Sec.80C and medical insurance premiums under Sec.80D

o       Home insurance is for your home and valuables while home loan insurance would not leave your family with a home loan debt should you no longer be around

 

Rule No. 8: The sooner you get debt free, that more financial freedom you have.

 

          How to get out of debt

 

·        List your loans along with the interest rate

·        Categorize them into those with tax benefits(home loan, education loan)and those without(vehicle loan, personal loan, credit card debt, consumer durable loan) 

·        Consider which assets can be sold towards clearing the expensive debt(high interest rate, no tax benefit)

·        Also consider how much extra you can pay monthly towards clearing it