Hyderabad: Everything happens for a reason. You need a sound understanding. Stock markets are reaching new highs and interest rates are rising. Experts say India will not come under much impact of recession that has already cast shadow on some countries. Hence, greater care is needed to formulate your financial planning. Only by setting sound financial goals, you can make sound investments that will yield more in the long term.
As per latest statistics, those opting for long-term investments are turning to mutual funds. Some factors should be considered here. Financial planning and investments are not the same thing. Investments are a part of financial planning. How to achieve funds required at different stages of our life is a rough plan. It gives us clarity to know what kind of investments to choose. It helps in achieving goals in the short-medium-long terms.
In the absence of a proper plan, we will have no control over income, expenses, investments etc. First identify important financial goals in life. Buying a house, children's higher education, their marriage, and your retirement plans. Determining the goals and estimating the amount required for them are very important. Take care of these matters in advance. This will help achieve the desired result when the time comes.
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Prioritisation of goals is crucial. What can be pursued immediately and what should be postponed? You can think about it based on your existing resources and future investments. Not all goals have the same duration. Some may be thinking of buying a home within 3-5 years. For others, the cost of children's education may come after 10-15 years. There may be another 30 years for retirement. Don't postpone long-term investments for short-term goals. For example, it is a mistake not to invest for retirement because of the cost of children's education.
Equities are long term investments that provide returns exceeding inflation. These should be chosen to stay in the market for a long time. The same applies for investing directly in shares or investing in the market indirectly through equity funds. For short and medium term goals, one should opt for less risky schemes like bank fixed deposits, post office savings schemes, bonds and debt schemes. While investing, consider cashability, tax burden, tenure, etc.
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After setting the goals and prioritizing them, think how much to invest in which scheme. Calculate every expenditure with inflation. Suppose your daughter's wedding now costs Rs 25 lakhs. With an average inflation of 5 percent, after 21 years, Rs. 70 lakhs is required. This cost can be borne only by investing in schemes that earn at least 12 percent return. Every requirement should be calculated like this.
Fluctuations in stock markets are natural. When choosing equity mutual funds for long term goals, ignore the short term upsets. All you need is financial discipline to invest regularly. Before investing, it is a must for every earner to take a term policy for an appropriate amount depending on their annual income and liabilities.
