What if I told you that if you diligently invested ₹1,000 every month, you could build yourself a corpus of ₹1 crore? All this within 30-35 years. Would you believe me?
Well, this is what planning your investments right can do for you. Your money becomes your ally, working for you, as per your instructions, leaving you content and stress-free, for life.
What are these instructions I’m talking about?
Let’s take a look.
1. Set Goals
- As we discussed last week, set SMART goals for yourself and your money
- Set aside 10-30% of your income solely for investing purposes
- Now, prioritize and quantify your goals wisely. For instance, allocate a higher portion of your income towards paying off a personal loan and a lower portion towards saving up for say, a Euro trip
2. Pick the right investment avenues based on the due date of achieving the goal
For an immediate goal, less than 1 year horizon, invest in a Liquid Mutual Fund or a Fixed Deposit. You could also simply leave the amount in your Savings Account if the value doesn’t exceed 1 lakh.
Short term goals, of a 1-3 year horizon, invest in a Liquid or Debt Mutual Fund, with a small portion (say 30% of the goal value) being in a Fixed Deposit.
For a medium term goal, 3-7 year horizon, invest in a Hybrid Mutual Fund or a Multicap Mutual Fund.
Long term goals, of a horizon over 7 years, invest in Equity Mutual Funds and Index Funds. We only recommend investing directly in equity shares of a company if you have the financial bent of mind. Shares are riskier than mutual funds. Opt for direct investment in shares only if you have the time and inkling to doing the required research on the companies you want to invest in. Whether trading, or investing in shares for the long term, studying and learning about the stock market takes effort, don’t look at it for quick money.
For goals like retirement, that have a horizon of 15-30 years depending on your age, not only should you be investing in Equity, but you should also be investing in fixed income avenues like Public Provident Fund and National Pension Scheme. Your employer probably already sets aside a part of your income in an Employee Provident Fund. This usually isn’t enough. In addition to the EPF amount, you must set aside more for retirement.
A Good Thumb-Rule
Here’s a good thumb rule to follow when formulating your investment strategy,
- 30% of your total investment should be in fixed income avenues (like PF, PPF, NPS, FDs)
- 70% in equity (mutual funds)
When you couple this rule with investing for goals in small amounts every month, it’s an unbeatable formula for success. Your investment portfolio balances out the risks and rewards, leaving you financially happy and healthy, always. Start planning your investments today and watch the magic unfold, slowly but surely.
