Ignorance while investing is not bliss; it’s costly. Amateur investors are more likely to act impulsively when it comes to making investments. Thus, these investors go for instruments that only promise high returns, but do not have the necessary credentials to back their claims. On the other hand, smart investors first assess the investment opportunity thoroughly, before placing their money into it.
Overall, being thorough with the investment opportunity and its potential to generate capital gains is the key to maximizing the profits while minimizing the associated risk.
So, if you too wish to reap the benefits of investments like a professional and not an amateur, be sure to ask the following questions before investing.
1. What is Your Investment Goal?
It is the first question you need to ask before making any investment. Investments should always be goal-oriented, and you must have a clear idea of how that investment will help you achieve your goal.
Once you have decided on the course of action, you need to start planning the period and the amount of money you will need to fulfill the goals. Once you see the contours of the goals, you will be able to identify them as short-term, mid-term or long-term investments.
2. What Is the Tenure of The Investment?
Just as your investments must have an objective, they must also have a due date. Financial experts refer to this as an “investment horizon,” it helps in deciding the tenure of your investments.
For instance, if your child is five right now, his/her college will be due in the next 13-14 years. Therefore, you have 13-14 years to achieve the goal of funding your child’s higher education by investing successfully. The tenure of your investments also depends on your capacity for contributions towards your goals.
You need to find out the amount you can separate from your income for investing. Being realistic while deciding on the contributions can help you in determining the tenure effectively.
3. What Are the Risks Associated with the Investment?
Before investing, you must ask yourself if you are a risk-averse or risk-taking investor. Risks can be of many kinds, emanating from inflation, markets, interest rates, currency fluctuations, mis-selling and so on.
Investments in equity funds offer higher returns, but the risks are high, whereas investments in debt funds carry low risk but offer fewer returns. To tackler both these problems you can invest in ULIP plans.
Known as the best investment plans for long-term, ULIPs offer benefits of both equity and debt funds. In addition, investors are provided with the option to switch funds from debt to equity according to their preference.
4. What are the Advantages Offered in the Investment?
Companies today provide a plethora of benefits with their investments plans to entice customers. While selecting the best investment plan always go for one that offers you the best value for money.
For instance, when it comes to ULIPs, reputable insurers like Max Life Insurance offer a host of benefits such as loyalty additions, zero policy administration charges, additional riders, and 12 free switches a year.
5. What are the Tax Benefits Offered?
Before investing, you must inquire about the tax efficiency of the instrument. The government of India offers various tax exclusions on investments under the Income Tax Act, 1961.
The best tax saving investments offer deductions up to Rs. 1.5 lakh under Section 80C and tax-free maturity benefits under Section 10 (10D).
6. How Does It Fit in Your Investment Portfolio?
Imagine making a meal by throwing all your favorite dishes in one pot. While these dishes would be delicious alone but adding them together will make the food gross.
Investing is similar. It is not about choosing a bunch of investments providing high returns. It is about selecting a set of investments that work in harmony to help you achieve your goals.
Successful Investing Requires Due Diligence
The first step towards any successful investments starts by assessing your finances. You must have proper knowledge of your incomes, liabilities, savings, and expenses. Surely, you may think you have a vague idea on it, but that’s not enough, you must be affirmative on these things.
Moreover, if you still have any doubts about the investments, you can consult an investment advisor. Be it best investment plans that offer high returns or best tax saving investments that provide high security; investment advisors can help you choose the best option that aligns with your objectives.