Getting started with investment planning The following steps would enable you to get started on your path to becoming a successful investor.
Step 1 : Identify your financial needs and goals The starting point of a sound investment decision is to begin with a clear understanding of you financial needs and goals. Typically, any financial need or goal would translate into determining the tenure of your investment (investment horizon). All investment needs and goals can therefore be translated into short-term (less than 1 year), medium-term (more than 1 year) and long-term (more than 5 years). Here is an example of a typical household (a couple with two kids) and their financial needs and goals.

Step 2 : Understanding investment choices
There are three basic investment categories: Equity, Debt and Cash. Any investment can be classified into these categories. They are also known as three basic asset classes. The key to investment success is in understanding how each asset class performs over the various investment horizons, the choices within each category and the risks involved in making investment decisions in each of these choices.
Equity or Stocks are ownership shares investors buy in a corporation. When you make equity investments, you become part-owner (to the extent of your shareholding) of the company you invested in. However, there is no particular rate of return indicated while investing. The current value of your holding is reflected in the price at which the stock/share is traded in the stock markets. Hence, these constitute a relatively riskier form of investment.
Debt instruments or Bonds are loans investors make to corporations and governments. They promise a fixed return at the time of making the investment. Also the promise of getting the money back is dependent on who is making the promise. In case of the Government, the promise will certainly get fulfilled, but if the issuer of debt is a company or an institution, the quality of the issuer needs to be adjudged, to ascertain its ability to keep the promise. Debt investments, therefore, provide you with the promise that your principal will be returned along with the interest payable thereof.
Cash investments include money in bank savings accounts and other liquid investment options.

Step 3 : Decide an appropriate mix of various investment choices (Asset Allocation Plan)
Making an asset allocation plan is all about determining the proportion of investments in each of the three basic asset classes. This is to be done on the basis of pre-decided formulae according to various investment approaches discussed earlier i.e. aggressive, moderate and conservative. Whatever stage of life you are at, you would need to invest part of your money for security and liquidity, part of it for regular income and part of it for growth and capital appreciation. The proportion however will vary based on individual goals, time horizons available to meet those goals and one's risk profile (the tolerance reaction to any down turn in the stock/debt markets). The key to investment success lies in determining the appropriate mix of the above mentioned categories and not just the individual investments that are done within each category Suitability - This portfolio is suitable for young investors (less than 35 years), who are just starting out. Early in your profession, retirement is still a long way off. You are probably just married or planning a family, or perhaps building a home.

The younger you are, the greater is your ability to withstand higher risk. The equity part of the portfolio is meant for capital growth to meet the long-term goals while the debt portfolio is to provide for medium-term needs.

Suitability - This portfolio is suitable for you if your age is within 35-50 years and you are at your peak earning years, might have to probably finance your child's education and other social obligations.

Aggressive PortFolio
Cash	10%
Debt	70%
Equity	20%

The extra debt portion will take care of your extra medium-term liabilities while equity portion continue to provide the potential for long-term growth.

Suitability - This portfolio is suitable for you if you are over 50 and it would aim to keep your savings secure while at the same time would generate enough income to help you relax and enjoy your retirement years.

Moreover, since your source of income after retirement may be limited, your savings would need to go a long way. And the small equity part can assist you in staying ahead of inflation.