There is no financial future without investment. How else will you fight against inflation, ensure financial security when you no longer work and lead a financially content life?
The earlier you start, the better it is. Before you begin investing, keep these 7 golden rules of investing in mind.
a. Lay down your goals:
It is difficult to map out a journey without knowing the destination, right? Same goes for investing without a goal. If you invest Rs. 100,000 today aiming for Rs. 300,000 after 5 years, then a terminal bond cannot fetch you that.
b. Know your risk tolerance:
It’s important to know your limits, gauge the amount of risk you can take. For instance, say, you invested Rs. 20,000 and it dropped to Rs. 18,000. If you were upset and continuously brooding, it clearly shows you are not an aggressive risk seeker. In that case, something safer like a debt fund or PPF would be more suitable for you.
c. Don’t let past performance be the only metric:
Please remember, a good performance in the previous year may not guarantee the same this year. What if it was a fluke! In order to avoid that, you can check how the fund performed in the last 5-10 years across market cycles – that is a reliable indicator.
d. Discipline Discipline Discipline:
Continuous investment is essential. Many an investor had struck gold when they decided to stick to his/her selected plans throughout the tide because even underdog funds tend to rise in following years. Also, investing a fixed sum regularly (via Systematic Investment Plan or SIP) makes investment affordable and safe from market turbulence.
e. Focus more on value than price:
The price of a stock depends on market trends and not necessarily by the success or value of the company itself; this is why experts swear by ‘buy low (when the market is down) and sell high (when the market rises)’.
f. Be debt-averse:
The credit card generation, the millennials, is not as averse to borrowing as the previous generations were. More is not good when it comes to credit card dues and bank loans. For instance, if you wish to buy an SLR camera worth Rs. 80,000, would you want to start an SIP or pay credit card EMIs with interest? It is worth some thought.
g. Be tax efficient:
Investing in a fixed deposit might give you 7-8% interest, and the returns are taxed as per your tax slab rate. PPF is now exempt from tax but comes with 15-year lock-in period. ELSS, though delivers potentially better returns 12-14%, it caters to risk seekers.
P.S. Make sure you understand the taxability of the scheme before you start investing.