What is investment and what are the benefits of investing properly and strategically? There are various investment strategies available in the market, but it can also be very confusing at times. Here’s some help on the basics of investment and how smart investment can help in setting up better financial security.
Generally, investment would mean allocating money with the hope of gaining some benefit in the future. In finance, the benefit from investment is called a returnwhich can be either capital gains or investment income. In the present inflationary rate market, if proper investment is not made, than it is very difficult to maintain a good standard of living with a mere paycheck.
One of the first steps young people can take to achieve financial freedom is through lucrative investments. However, there are certain limitations in such fields; that is, one can succeed in the investing world if only one is willing to fail and take some risks. As far as Nagaland is concern, according to my view, common men here are quite ignorant about the kind of investments that are available. Although we have many opportunities for earning money, at the same time we also need to know how to channelize them because how much we earn does not matter, what matters is how much wealth we can accumulate during our lifetime. Before investing, we should also have some knowledge about where to invest, and we can gather information through the internet or financial advisors in banks, mutual funds agents or some investors who are already in that field for the past few years. Though these days people have started investing only a few have succeeded in making a profitable investment. The reason for this failure is because they invest only for the sake of investment, not considering smart investment. Given here are some tips for smart investment:
Start as early as possible (Time): It is always better to start early because money may be tight in the later stage of life but when we are young adults advantage and that is time. There is a concept called “compounding” which Albert Einstein has stated as “the eight wonders of the world.” The magic of compounding has the ability to grow an investment by reinvesting the earning and time.
Understand the concept of investment: The basic rule in smart investing is “never invest in what you don’t know”. Be it secured or unsecured investment. For example, if you are investing in mutual funds, find out what is NAV, entry & exit load, what is fund performance, what affects mutual fund returns, what are the good reasons to invest in mutual funds etc. All this information can be attained from the internet or financial advisors appointed by the banks or Unit Trust of India.
Have patience: It is one of the essential qualities of smart investors. Getting into investment by means of short cuts or by going for faster options will not help in producing any positive output. Sometimes markets may fluctuate both in positive and negative ways. Investors need to have patience and wait till the market booms in the upcoming days because Indian market has huge potential, provided you have invested the money in the right place.
Always have Tax Saving Plans: It is always advisable to have a tax saving scheme in your portfolio, whether we fall in the tax bracket or not. It is a known fact that schemes like National Pension Scheme (NPS), Public Provident Fund (PPF), Unit Linked Insurance Plan (ULIP) or Equity Linked Savings Scheme (ELSS)do not offer high return but it saves a huge portion of our Income tax to be paid either at present or in future. This should not be misunderstood with tax evasion; it simply means legally using your money in the proper direction, instead of giving it to the government by way of tax.
Equity Investment: Another must-add in your portfolio is equity. Take a look at Sensex graph from the past couple of decades and you’ll know why. For instance, the opening price of Colgate Palmolive share was @Rs 112.5 per share on 4th Jan 2000, which now stands at 1056.9 (closing price as of 29 March 2018). Equity market has shown remarkable results when investing for longer duration. But it is also risky to invest in equity shares without proper information. For young people and higher income level investors, it is advisable to go for equity that has higher returns but only after necessary research of the companies for past few years (Based on Crisil Ranking, Financial Performance & Position etc of the company). But for investors who are not willing to take risks on their own, they can invest on equity schemes via SIP (Mutual Funds), so that the cost of units is averaged out and returns are healthy even during volatile markets.
Always have Plan B: Sticking to one plan might be risky at some point of time. A smart Investor portfolio should contain a mix of equity, debt and fully secured investment so that each one can supplement and complement the other. It allows investors to be on the safer side so that if there’s a financial crunch, you can find a way out of it on your own.
As the Chinese Proverb says, “The best time to plant a tree was 20 years ago. The second best time is now”. If we start young, we will get more time for better investment. Time is a crucial factor so start at an early age, start small with secured investment first, then gain experience and opt for mutual funds (equity supplemented by debt portfolio schemes)which will help you understand the market conditions. Finally try to invest in direct Stock market if you are willing to take risk and earn more returns. Remember that one of the golden rules for smart investment is that it involves “Speculation instead of Gambling”.
Degree of Thought is a weekly community column initiated by Tetso College in partnership with The Morung Express. Degree of Thought will delve into the social, cultural, political and educational issues around us. The views expressed here do not reflect the opinion of the institution. Tetso College is a NAAC Accredited UGC recognised Commerce and Arts College. The editors are Dr Hewasa Lorin, Tatongkala Pongen, Seyiesilie Vupru, Vikono Krose and Kvulo Lorin. Portrait photographer: Rhilo Mero. For feedback or comments please email:firstname.lastname@example.org.