Some options for a long-term investment plan with a dose of both equity and debt instruments
Investing is a continuous process, and wealth managers advise investors to start planning and investing as early as possible in life. It is very important to think about and plan all your investment needs. Wealth managers say investment planning is as important as earning. It's like putting your money to work rather than just parking it idly.
Here are some aspects of various short-term and longterm investments that you should consider while chalking out a plan:
• Optimisation of tax liability
• Individual risk profile
• Life insurance coverage
• Medical insurance coverage
• Long-term goals and requirements - children's education, buying a property, retirement planning etc
• Liquidity in hand
Wealth managers suggest investors should look at a variety of options based on their requirements, and allocate funds accordingly. There are many investment instruments available in the market and you should invest based on your needs as well as to optimise returns.
Tax-saving instruments
According to income tax laws, every individual can get a rebate in income tax by investing in certain instruments. Some such instruments are the provident fund, National Savings Certificate, infrastructure fund etc. Since income tax drains a significant portion of an individual's income, one should look at investing in various tax-saving instruments to optimise the income tax outgo.
Life insurance
Life insurance is an important area which requires close attention. A general thumb rule is an investor should have an insurance cover of at least 5-8 times his annual income. Life insurance covers are available in term and endowment plans.
Under a term plan the premium paid covers risk to life, but it does not have any investment component. On the other hand, an endowment plan covers risk as well as provides a maturity benefits to the investor. One should also look at a balance between a term and endowment plan to optimise the premium involved and risk cover.
Health insurance
Medical treatment is expensive. Medical emergencies can drain a significant amount of money from an individual's savings if left uncovered.
Therefore, investors should take adequate medical cover early in life to get better coverage at a lower premium.
Debt instruments
Debt-based instruments usually provide a guarantee to secure the principal amount invested in the scheme and most schemes guarantee a return as well. Debt-based instruments are good for risk-averse investors. Those with a higher risk appetite should also allocate a certain percentage of their portfolio to debt-based instruments as they provide stability to the portfolio and reduce the overall portfolio risk.
Equity-based instruments
Investments in equity can be classified into two major categories - direct investments in stocks and indirect investments through equity-based mutual funds. However, investments in equity and equity-based instruments are subject to market risks. Historically, investments in equity-based instruments have given 15 to 20 percent per annum in returns over the long term.
Investors should have realistic expectations from their equity investments. Often, unrealistic expectations lead investors to invest in very high risk instruments where they end up losing their hardearned money.
Combo schemes
There are many mixed schemes available in the market that provides the flavour of more than one investment class. For example, equity-linked insurance schemes, equity plus debt combo savings schemes etc. These schemes are a good way to balance the investments. However, one should understand the various terms and conditions well before investing in such schemes.
