Falling interest rates have reduced the attractiveness of savings in banks. Vikram Singh (46), an engineer in a public undertaking, got an opportunity to assess his financial situation during the last six months, then found that his savings were now yielding lower returns. It is natural for him to be concerned about his financial future. He wants to know how they should invest. There are basically obstacles in the way of investment. Unlike buying a car from a loan or buying an online motor or health insurance, one has to complete KYC (No Your Client) formalities to invest in the stock market or mutual fund. This is the same as a driving license is required to drive a car. That is why it is different from the decision to buy health insurance after seeing the bill of a friend hospitalized.
You also cannot invest on the basis that you had heard that it is a good idea or suddenly you find it attractive to invest in the market. Fundamentals of Investment Let me reiterate that you need to understand what is the actual return of any savings or investment. After considering the impact of inflation and income tax, the annual rate of return is the actual return. For example, if you add a six percent inflation rate and an income tax of 20 percent at an interest rate of 7.5 percent on FD (fixed deposits), then the actual return becomes zero.
Yes, you read well, you do not benefit from having money in such savings. Actual Return (after-tax) = 7.5% - (6% + 20% X7.5%) = (6% + 1.5%) = 0. That is, if someone is within 30% income tax, then he will pay to the bank only in return for securing his savings. This means that by balancing inflation or inflation, you should acquire or secure the property so that your standard of living does not matter. Apart from this, you also need to acquire assets to meet your future financial goals, so that you can live a comfortable retirement life. There are many types of investments that can be categorized as wealth creation. For example, Equity (Shares), Debt (Bond), Real Estate, Gold (Commodity) and Cash Equivalent, etc.
These assets have their own risk and return potential for investing money. Each asset category has a reasonable duration. As cash equivalents are good in the short term, equity is a long term option, real estate is good for mid and long term investment and gold is good for medium-term investment. It is good that you assess your own risk-taking ability and start investing accordingly. It is important that you start investing in mutual funds, as they do not require any expertise to invest. You can start investing in a well-performing fund scheme given past performance and investment objectives. There is not much money required to invest in a mutual fund, you can start investing in a SIP (Systematic Investment Plan) with the help of five hundred rupees.
Make a list of your future financial goals with clear deadlines and the funds needed for each of them. For example, if you are going ahead with a target of fifty lakh rupees in fifteen years, you will get a return of 12%. An investment of Rs 10,000 will be required every month in the fund scheme. A good way to invest in mutual funds is SI and a good fund scheme for a beginner is ELSS (Equity Linked Saving Scheme) which is a tax saving mutual fund. Such investment also provides tax exemption of Rs 1.5 lakh annually under Section 80C of Income Tax. In this case, the lock-in period for investment is three years, which is short term and is good for increasing the scope of investment. Vikram can start with this.