Make sober returns objectives
When investing, seek to make a post taxation return that is above the average inflation rate. Contrary to speculative trading where traders quickly sell off poorly performing assets to buy into those with abnormal returns, investments not only mean sacrificing a portion of your regular income but also taking the time to nurture see it grow and give a better performance.
Diversify your investment portfolio
The common saying “don’t put all your eggs in one basket” applies to your investment. Choose at least 3 out of 5 investment vehicles to channel your reserves. An evaluation of performance over a period should give you a good indication on how to apportion your corpus. For example, equity markets generated a higher return, at 5.66%, over the last 25 years compared to, Pension funds (1%), gold (-0.32%) and Bank Fixed Deposits (-1.78%).
Prepare for the Unforeseen
A necessary but often overlooked aspect is the need for insurance. Insurance cushions you financially against the effects of an accident or illness. With the rise in costs of medical care, without insurance, such an occurrence would otherwise force you to liquidate your investments to attend to the emergency. Moreover, insurance qualifies you for certain tax breaks (medical insurance qualifies you for a deduction of Rs 25,000 to Rs 30,000 depending on your age under section 80D of the Income Tax Act.)
Opening a National Pension Scheme NPS Account should feature as a priority for all citizens of age. Through the scheme, you compound your corpus as well as are eligible for a tax break. We recommend that you invest a maximum Rs. 50,000 to give a tax saving of Rs 15,000 (for those in the 30% tax bracket). A higher amount, say Rs. 1,00,000 would translate to the same in tax, but the tax payable later, on withdrawal, will be on the entire amount approximately Rs. 30,000.
When investing in the money markets, we often make an error of investing short term in equities and long-term in debt instruments. However, a disciplined investor would do the opposite i.e. long term on equity and short term on debt instruments. The trend is similar for other investments, disciplined investment frequently goes opposite to what we practice but gives a better return.