When investing for financial growth, you are actually allocating your money to an instrument that allows your money to grow. Now that you are thinking about investing, you already have a clear idea of what you want your money to do for you.
A good starting point for investment is knowing your financial objectives, your risk appetite, and how much and for how long you can afford to invest. Factors such as income and age are also important influencers.
It is worth taking time while set up goals. How you set your goals depends on how quickly you need to withdraw the money to meet your requirements.
In this article, we will discuss how a step-by-step approach will help you set your investment goals. These steps will give you a realistic plan to achieve your goals in the long run.
Set the reasons for your investments
To put it in simple words, we invest to make more money to achieve a financial goal. Now, for you as an investor, it is essential to know your goals. Only then will you know which investment tools are good for you? Every goal requires a different time commitment, and you have to be honest while investing in your goals.
Calculate the amount of risk you are comfortable with
While calculating risk you have to key in factors like the number of dependent family members, your age financial commitments, existing debts and insurance premiums you have to pay. All of these factors along with your income will determine how much risk you should take while investing.
Investments are market-dependent, and ups and downs are very common. It is suggestive for a conservative investor to take less risk and invest small chunks in SIPs. When you have spent some time in the investment market, it is a good idea to ask yourself where you can take risks and where you can’t.
Be clear about the time needed for investment
The longer you invest, the chances are your returns on investments will be higher. But how long you need to invest depends on what you want out of your investments. Any money requirement that can be fulfilled with 3 or fewer years of investment is considered short-term. Medium-term goals will require an investment span of 3-5 years. Long-term goals will require over 5 years of investment.
An investment strategy is a must
Once your goals are clear and you have considered how much risk and time you need, it is time to consider suitable investment options. The plan is to start with something safe and low-risk. Then, if you are okay with a bit more risk, you may look for medium-risk investments. Once you are confident and have a grip on how the market moves, you should look for high-risk investments.
Always try to have a diversified investment portfolio
To be protected against market ups and downs, you should have a diversified investment portfolio. Having a good mix of investments with fixed returns, market linked investments and tax saving investments will be the best way to go.
For example, ELSS mutual funds are suitable tax-saving investment opportunities that can help you save up to Rs. 1.5 lakhs in a year under Section 80C of the Income Tax Act.
It is necessary to review your investments annually and make sure they are on track to help you achieve your financial goals. Any changes to your financial objectives should be reflected in your investments. Checking asset allocation, diversifying your portfolio, and assessing performance are the three major steps you should take to keep your investments in line with your goals.
This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.