Every investor strives to generate maximum returns on the investment. However, it is all about choosing the right investment product and making the right decision when it comes to the type of investment one decides upon. It has been rightly said that remaining invested for a long-term can generate higher results. If you choose the right type of investment product and remain patient, your wealth will grow. With the number of investment options in the market, it can be confusing to choose one. Create a smart investment plan in order to generate higher returns and to fulfill your long-term financial goals.
How to create a smart investment plan
In order to maximize the returns on your investment, you need to learn about the basics of the investment product and choose the one that suits your needs. Do an in-depth research and make a decision to invest. Do not blindly follow trends or recommendations.
Frame your life goals
The first step towards having a smart investment plan is to frame your life goals and attain clarity on where you stand in terms of financial health. You need to define a period for achieving your life goals and the amount that you will require to get there, which you can invest today. Every investment plan will have to be goal-based in order to help you fulfill them. You can choose different investment options for different life goals based on the period or you could invest in one investment product for all your life goals. In order to generate higher returns, you need to have a well laid out financial plan, which is realistic and rational.
Invest in the right products
This is the most important aspect of decision-making. You have started saving and you want to generate higher returns, but where should you invest your savings? Most investors face this dilemma and are unable to decide. You should ideally choose an investment product based on your goals, time frame, and risk appetite. If you have a low-risk appetite and seek regular, fixed returns, you need to invest in products like fixed deposit, Public Provident Fund (PPF), and liquid funds. If you have a long investment tenure and can bear the market risk, you could opt for Unit-Linked Insurance Plan (ULIP) in order to generate wealth in the long term. ULIPs invest the amount into different funds, which diversify risks and generate returns based on the movement of the market.
Term life insurance is an ideal investment option for most investors because it is inexpensive and provides a cover for life. Term life insurance is a policy purchased for a specific period of time. In case of death of the policyholder, the insurance company will pay the amount to the beneficiaries. Permanent life insurance is another category, which allows the policyholder to accumulate the cash value and acts as an important investment. The benefit of investing in a life insurance policy is the tax deduction. It is a type of investment where the premium amount paid by you is deductible under section 80C of the Income Tax Act. Life insurance will provide for any expenses incurred in case of a chronic illness. You can also choose to purchase a rider for a specific medical condition to reduce the out of pocket expenses in case of hospitalization. Additionally, the amount you pay as premium will generate cash value in the future. Hence, it is of utmost importance for you to invest in a life insurance plan for the security of your loved ones. Apart from term insurance and life insurance, there are ULIPs, which provide the double benefit of insurance and market-linked returns on investments.
The most important step to creating a smart investment plan is to diversify your wealth. When you put all your money into one investment product, the risk associated with the same increases. If the market is volatile, you might notice a huge increase or a prominent fall in your investment value. You need to build a portfolio and diversify the same in order to reduce the risk associated with it. You may diversify your portfolio by investing a certain amount in low-risk investments such as fixed deposits and a particular amount in market-linked investments such as ULIPs, mutual funds, and equities. With diversification, your risk will be balanced.
Start an SIP
A Systematic Investment Plan (SIP) is the best way of investing regularly. It brings financial discipline in your life and allows you to make regular and consistent investments. With an SIP, you will be investing a particular amount every month and this will help grow your portfolio. New age ULIP plans also have monthly mode for payment hence investors can systematically invest in the plan over a long period to achieve their life goals. A certain amount every month and the same will be invested into the chosen ULIP product. This will reduce the average cost of purchase and will allow you to make the most of the market movement. You can set up an SIP with ULIP investment plan where the amount is directly debited from your bank account on the pre-decided date.
Once you have laid out an investment plan, you need to evaluate the same from time to time. Check your portfolio and analyze the amount. Ask yourself questions about your investment. Does your investment require any modification? Do you need to shift the funds? Do not make any investment decision based on the market movement as you cannot time and predict the market. Making a hasty decision could cost you heavily. Schedule a monthly review of your portfolio and most importantly, remain patient. It takes time for the wealth to build and you cannot expect results overnight. Keep saving and remain invested for a longer duration for higher returns.