Every time when someone gets increment, expenses eat into the amount. There are many people who have been struggling to invest this extra sum. What prevents them from doing so is- they never plan, they never look for appropriate investment avenues, they don't know how beneficial it could be for future.
The best use
The best use
Step1: Plan your investment
First, calculate how much increment you have got. After adding a little to your monthly expenditure, keep aside at least 75% amount for the investment. The best way to do so is to keep your investment: expenditure ratio 3:1.
But, if there's any ongoing debt, get out of it first. Never plan investment if you are already under debt.
Step 2: Choose a smart option
There are two types of investment options available to the investors- short term investment and long term investment. The choice of investment entirely depends on your need. The short term investments are beneficial if any financial emergency crops up. So, you need not to encash the long term investment in case of emergency. The long term investments, on the other hand, are safer and offer a great degree of stability. Let's examine the pros and cons of both:
Step 3: Research before you invest
Comprehensive research is imperative if you want to get maximum returns. First, study the history of the investment instrument and various case studies. Then, do a comparative analysis of methodologies used by smart investors. Get hold of the investment procedure, talk to some financial advisors and make an appropriate decision.
For example, investment in real estate becomes retirement income for many people. But you need to look for all viable options i.e. whether you want to invest in rented property or owned property. If possible, meet some investors who have been investing in the real estate sector.
Step 4: Learn basics
No matter which investment instrument you choose, you must know the basics of the investment instrument. One can find a plethora of tutorials on the Internet. Go through some tutorials and get familiar with various investment variables. Say, for example, while investing in bonds, an investor must know what does coupon rate mean?, what is maturity time?, what is credit rating? and so on. Moreover, he needs to have knowledge about profit and loss account, balance sheet and cash flow statement. If required, seek expert advice.
Remember, learning is an ongoing process. Keep track of latest happening that could affect your investment instrument.
Step 5: Make a strategy
Investment strategy largely depends on time allocation and risk appetite. For instance, if you have a full time job, you must not have time for making an elaborative and diversified investment portfolio. However, the level of risk tolerance could be high as you have fixed income. On the other hand, part-time workers should look for options that involve low risk. They can invest in different types of investment vehicles because they have enough time to plan.
New investors should always start with low risk investment options. They must focus on one type of investment option. Once they get hold of the intricacies of investment markets, they can diversify their portfolio. While regular investors can go for high return avenues, even if there's high risk. After all, high risks bring high returns.
How to save tax?
What if you got to pay tax out of the increment amount, doesn't the whole purpose of getting increment is defeated. It is, therefore, necessary to adopt tax saving measures. "The best way to save tax on your hard earned income is to invest in long term plans like PPF. According to the provisions of Sec 80C, the entire investment in PPF can be tax free," says Mr. Ravi Gupta, Investment Consultant, Safe Investment Consultant.
When asked about safe as well as tax free avenues of investment, Mr. Gupta says, "Government schemes are way better than schemes offered by private companies because they are relatively safe. Say, if you invest in PPF, you will get tax benefits on both principal and interest amount. Moreover, the rate of interest is pretty good."
Source : moneymantra
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