If you are investing for the first time, the chances are that you will be bombarded with advice and tips from your friends and relatives, or you might be confused by never-ending instructions from financial publications about where to invest and how much to invest.
Your concern is understandable as it is your hard-earned money and you do want to get the maximum returns from the investment. It is a tough decision which will have a long-term impact on your finances.
Here are some simple, straightforward but extremely relevant tips to help you escape the noise and to zero in on the perfect investment.
1. Prepare an Investment Plan:
A key to the best investment results is to be extremely clear about the goal. Investment based upon life goal means that you have a time frame and the amount needed in mind. Once you have decided on the life goal, it is time to zero in on the type of investment which will enable you to realize the life goal. The type of investment vehicle can be decided based on your age, liabilities, income and your life goal.
2. Start Early
The sooner you start, the better it is as it allows you to take advantage of the 'Power of Compounding.' Benjamin Franklin once said, "Money can beget money and its offspring can beget more." Power of Compounding is a powerful concept enabling the investor to earn interest on the initial capital.
3. Invest Systematically
It is advisable to start with a small amount, but it is vital to maintain consistency and to invest at regular intervals. Avoid the temptation to time the market or investing large sums in a single go. Doing so, you will be deprived of the benefit from the concept of Rupee Cost Averaging, whereby investing on a regular basis allows you to even out the highs and lows of the market. Thus the trick is to set a time frame and stick to it to get the best returns out of your online investment.
4. Consider the Tax Benefits
For most of us, one of the critical reasons for investing is saving on tax. As an investor, you should go for investment options that not only help you save tax but also generate tax-free income. If the income earned is taxable, you limit the scope of making money over the long run as taxes bring down your returns. For instance, Unit Linked Insurance Plans (ULIPs) have emerged as the only equity-linked investment plan which continues to be tax-free after the introduction of Long Term Capital Gain tax in the Union Budget 2018.
5. Check the Past Record
Being a first-time investor, it is advisable to check the past fund performance records of the companies you would like to invest in. Invest in companies whose funds have displayed a solid and consistent performance in the past. A reliable investment partner will not only ensure the best possible return on investment for you, but you will also feel a peace of mind, which is priceless.
A fundamental rule of investment is to never put all your eggs in one basket. Which means one should not stick to one asset class but diversify across a portfolio of asset classes to get the best results. Even if returns from one investment do not meet your expectations, profits from other areas will help you compensate for your losses.
In the end, prudent and judicious investment is the only way to grow your corpus and to meet your life goals. Invest consistently and in keeping with your goals to get the maximum returns. Various investment instruments, including ULIPs, allow you to do just that. Follow these tips, choose your investment partner carefully and invest to achieve and enjoy your life goals.