Investment avenues must take care of life goals

Some investors will reveal that like some of the more inexplicable movies, some investments appear to have no plot or plan. If the movie is really clever, towards the end it slowly dawns on audience that the bits and pieces are falling together, giving a clear picture and often leading to a stunning climax. Sadly, no spellbinding end awaits unplanned investments, or at least not one that makes an investor comfortable. More often than not, investor is left feeling repent, perhaps with a mild heart burn thrown in, and always the promise to make up for a past mistake.

Let us illustrate the case of ST, a mid level official at an export firm. For him investment is all about saving taxes. Over the past seven years, he has bought insurance policies, opened a Public Provident fund account and also started investing in the last three years in a tax planning mutual fund scheme. Last month, ST had needed cash for a family emergency, and that was when he realized that all his tax planning tools had a mandatory lock in period. He thought he would be able to take money from his PPF account without much of a problem. But found out that he can’t take a loan from it for seven years. He was also unpleasantly surprised to learn that he couldn’t take money out of his tax planning schemes, as they too had a lock in period of three years. ST didn’t want to pledge his insurance policy to get a loan, so he decided to borrow from a friend to tide over the situation.

It is unfortunate that some people adopt a casual approach towards investment. They just go with the flow, thinking that detailed planning is only for wealthy people, but that is not the case. Investors don’t find out until investors urgently need money from their investments that investor banked on the wrong investment tools. In most such cases, there’s not much investor can do to save the day.
For most people , investment means putting money in fixed deposits, buying insurance cover, and opening a provident fund account. They don’t realize that investor have to plan for all his life’s goal short, medium and long term – and then carefully choose the right tools to realize them. When investor don’t have a proper plan to achieve his goals, nasty surprises are almost inevitable. For example, one investor say ‘I’ realized that after his retirement he wouldn’t have enough money to take care of his monthly expenses and his advisors/consultants advised risky decisions to deal with the situation. Luckily for him, the stock market has been roaring, and he got handsome returns.

The best strategy is to have a proper financial plan in place before embarking on investments. It doesn’t matter whether investor is only planning saving taxes, or have a big chunk of money to invest. Investors must make sure they are investing in the right assignment avenues. Investors wouldn’t have much money to spare in the beginning of their career. At that time, if an investor wants to save taxes, tax planning schemes would be an excellent idea, as investor can take the money out in three year’s time. Also when investors are investing, he can afford to take a few risks to earn higher returns from stocks and as investors grow older, they should also look at relatively safer avenues like PPF. As investor’s ability to take risks reduces, investor may also want to diversify his portfolio.

For all investor’s short term needs, investor should put money in the safest instruments, like fixed deposits. For the medium term, investor can opt for fixed deposits and long term debt schemes in mutual funds. For goals that are five or more away, investor can invests in stocks. The basic idea is to ensure that investor’s funds grow at optimal rates, and that investor is not at the mercy of short term volatility in the market. Also investor will have required funds at his disposal as and when he needs the money.