5 investment & money management strategies

As the financial year 2018-19 has just started, it is the right time to plan your investment and tax planning for the year ahead. Where to invest, how much to invest – your plan has to include the things such as saving income tax, along with creating an emergency fund and consolidating your debt – to keep your financial house in order as well as to meet your future financial goals.

Apart from actual investments strategy, there are few steps that you should take to ensure financial discipline through the year; if you succeed, you will find yourself in a happy zone financially at the end of it. The following are some financial habits that you could look at inculcating:

Create a financial plan as per your goals: Creating a financial plan is the first step towards your financial well-being. Whether you make an investment or play safe and save for a better future, it is advisable to adopt a goal-based approach. You could be eyeing a new home, a car or creating a fund for your kid’s higher education – whatever it is, set a time limit for the target and work towards it.

Early tax planning: Most of the times you always know how much investment is required for a particular year for tax saving purposes. However, instead of making all that investment in a lump sump manner, it is always advisable to make small investments on a regular basis because in doing that you would not have to deal with cash flow uncertainties.

Tab on expenses and maintain adequate emergency fund: It is better to prepare a budget, list of all your fixed expenses such as rent, EMI, utilities etc., check if any utility payment can be eliminated or reduced. Fix a saving goal and see how much money you want to save. Keep track of all your expenses. This will not only help instill financial discipline but will also enable you to start a ‘savings budget’ instead of an ‘expense budget’. As a good practice it is wise to save before expenses rather than account for expenses and then save. Create an emergency fund consisting at least six months of your mandatory monthly expenses, such as your daily spends, insurance premiums, existing EMIs, rent, children’s school fee, etc.

Caution with plastic: We often tend to overuse our credit card; as we don’t feel the pinch when we pay with plastic. If you want to keep your expenses on a tight leash, go slow with your credit cards, and set a monthly limit on its use. Or even better, swipe your credit cards only during absolute emergencies.

Staying debt-free: Always try to stay away from debt trap; debt should only be taken in case of emergencies and not for discretionary purchases. Squaring off debt on time, or even before the due date, will help you achieve financial stability. The best way to deal with multiple debts is to consolidate your existing debts into a single one with a lower rate, longer tenure and other favourable terms.

Investment Strategies
for 2018-2019

Most people think that you need to work more if you need more money. But if you don’t have the time to enjoy it, is that bunch of money going to be pleasurable? Investment is to make your money work for you, maximising your earning potential and being aware of the risk involved at each step. Here is a list of investment options currently available for an average investor:

Public Provident Fund

PPF is one of the best investment options in India for investors who have a very low tolerance for risk; it is the secure and safest long-term investment product. The added advantage is that the returns are tax-free. It has a lock in period of 15 years. The money in the PPF account opened with a bank or post office cannot be withdrawn for this period and you can earn compound interest from this account.

The time frame can be extended for the next five years. The current interest rate effective from January 1, 2018 is 7.6% per annum (compounded annually).

Mutual fund

Mutual funds investment is a better option due to some of major advantages it carries such as it is easy on pocket, capital appreciation benefit, portfolio diversification, financial goal-oriented funds, tax planning option, professionally managed and easy to liquidate.

Direct equity or share purchase

Direct equity investments are riskier then mutual funds and other fixed income products because of the market risk as well as the risk involved in investing in one particular company. It is very important to perform a proper due diligence on the company’s financial situation before making any investments. A preferred option is to create a diversified portfolio of individual companies spread across various sectors to mitigate risk. Since equity investments carry higher risk the reward is also higher, on a longer-term basis historically equity investments have outperformed returns from any other asset class.

Investing in gold in various ways

Investment in gold and other precious metals is also an option for investors who want to create diversified portfolios of different asset classes. Gold investments act as a hedge against inflation and provide protection in times of turmoil and uncertainty. An investment portfolio should ideally contain 5-10% of investment in gold and other precious metals. Investments in gold can be made in several ways, you can either buy physical gold from the spot market, buy a GOLD exchange traded fund or simply participate in a gold deposit scheme where you can buy small quantities of gold on a regular basis

Post office saving schemes

Post office saving schemes are good investment options for retired people or for people with regular income requirements; the rate of returns are lower as there is no risk involved in such investments. In addition to money and investment strategies, it is also important to have a protective net around one’s family and oneself and in that regards having a medical insurance policy and a term insurance policy is the first step for an effective financial planning.

(The writer is Director Wealth
Discovery/EZ Wealth)