Nine Investment Mantras to Stay Ahead of the Curve

Written on Wednesday, October 12, 2016
By Team Bajaj Capital

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When you decide to take the investment route for your financial upliftment, then all you need is a comprehensive guide that you can abide by. Money or investment is a serious matter and thus taking professional advice is always recommended but along with that self-awareness is equally important. So, here are nine investment mantras that will help you in staying ahead of the curve. 

 

1. Secure your Family

 

Life insurance is like a financial protective shield for your family. Thus, having life insurance is the first stepping stone in your journey of financial prosperity. But how much insurance do you need?
 
That depends on your human life value. Here is how you can calculate your human life value: 
 
(Current Salary X No: of working years left + Liabilities – Current Assets) + Inflation rate. Thus Human Life Value depends on various variables and thus will keep on changing from time-to-time.
 
2. Health is Wealth 
 
Just like life insurance, even health insurance is your family's protective shield. Without this shield, your wealth, no matter how massive it is, will always be under a risk. A medical insurance not just ensure that at the time of medical need, you or your loved ones will get the best of medical assistance but it also does make sure that no medical emergency will take a toll in your savings. Here are the details on how much medical insurance you will need as per your age:
 
Nine Investments Mantras
 
3. Emergency Cash
 
This is the liquid cash that you should have in your easy reach for emergency purposes. Emergency cash should be equal to your three months expenses which include: household expenses + insurance premium + loan EMI's.
 
You can keep some section of this amount in your savings account and keep the remaining reserved in Liquid mutual fund schemes.
 
4. Retire Rich
 
Equity mutual fund investments have the potential to offer inflation-beating returns. An early start will give you the time advantage and thus you can invest in mutual funds through SIP mode that offers you three major advantages apart from market linked returns: 1) Power of compounding, 2) Rupee Cost averaging, 3) Weed out the need to time the market.
 
Another good investment product for retirement is the Govt. of India initiative NPS, governed by PFRDA that offers tax benefits plus the equity & debt exposure. Following are the tax benefits:  
 
4.1) Tax Benefit available to Individual: Any individual who is a subscriber of NPS can claim a tax deduction up to 10% of gross income under Sec 80 CCD (1) within the overall ceiling of Rs. 1.5 lac under Sec 80 CCE.
 
4.2) Exclusive Tax Benefit to all NPS Subscribers u/s 80CCD (1B): An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh available under section 80C of Income Tax Act. 1961.
 
4.3) Tax Benefits under the Corporate Sector:  Additional tax benefit is available to subscribers under Corporate Sector, u/s 80CCD (2) of Income Tax Act. Employer's NPS contribution (for the benefit of the employee) up to 10% of salary (Basic + DA), is deductible from taxable income, without any monetary limit.
 
5. Be Future Ready for Child's Education: 
 
Securing the future of children is the prime financial goal of any parent. In achieving this goal also, an early start helps you in accumulating desirable corpus right on time.
 
Five things to remember:
 
a) Waste no time
b) Plan for inflation 
c) Avoid low-return investments
d) Start smart & step up
e) Insure yourself
 
If your goal is at a time horizon of 10 years or more, then ULIP is a very suitable choice for you as it offers you the dual benefit of insurance plus the exposure to equity market along with tax benefits. While investing in ULIPs, it is important to stay invested for long term. ULIP comes with an option of free withdrawal after the lock-in period of 5 Years, and that too completely tax-free, thus in case you are not satisfied with the return, one can withdraw the money.
 
Along with ULIPs, you must definitely invest in equity mutual funds, through SIP route provided you have a longer time horizon and if you have a single daughter then Sukanya Samriddhi Yojana is also a very good investment product. 
 
6. Gift your Child a Dream Wedding
 
Child's future wedding planning also needs to be done keeping current inflation in mind. Here also mutual funds and ULIPs are good investment options for you. Again an early start will give you the time advantage.
 
7. Wealth Creation
 
Once you have aligned all six aforementioned points, you are almost set with all your major financial responsibilities. But if you are still left with money, then you can use it for wealth creation just to make your coming days more financially affluent. For creating wealth, you can think of following options - (A.) Equity Mutual Fund schemes and (B.) Gold: Ideally gold should not form more than 5% of your portfolio. In most cases, Indian households already hold a substantial quantity of Gold in the form of jewellery, ornaments, etc thereby fulfilling the 5% requirement. In that case, incremental investments should not be much. 
 
8. De-risking your Investment
 
It is very important for every investor to understand that once they start nearing to their financial goals they should start shifting their investments from riskier investment options (like equity mutual fund schemes) to safer investment options (Debt mutual fund schemes/ Liquid mutual fund schemes).
 
9. Legacy Planning
 
Legacy planning is a financial strategy that prepares a person to bequeath his or her assets to their loved ones or next of kin after death. These affairs are usually planned and organized by professional financial experts. 
 
The crux of the matter is a lot can be done with your money to make it grow substantially. Doing the right investment through the right product at the right time is important. Thus, it is always recommended that as an investor, you must enhance your financial awareness and also take professional guidance to build your investment portfolio and once every year, you must rebalance your portfolio to ensure the right allocation of your assets.

 

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