Investing in the equity market has come to be a popular method of wealth building, but how many of us actually know what or how it’s all done? And no, it is not just a matter of luck, getting high returns is a combination of making some wise decisions at the right moment. Here is a general set of rules every investor should live by in order to make the most of their investments.
1. Invest 90% of your savings in equity mutual funds. Note that, it is mentioned you 90% of your savings and not earnings. As is commonly mentioned, investments in equities are subject to market risks and it would do you a whole lot of good to not splurge your earnings into unpredictable domain.
2. Choose a systematic investment plan [SIP] to help you save regularly. The main advantage here is that you will have to keep aside a monthly sum irrespective of the value of the shares. A SIP has long term benefits and is preferred by those who don’t have much of a risk appetite. Your risk appetite is the extent to which you can tolerate risk without making hasty decisions when faced with market fluctuations.
3. Invest in short term mutual funds (for less than 3 years), these tend to have higher returns and the other bigger advantage is that you can sell it anytime you find convenient.
4. Choose a low cost term insurance, to ensure long term benefit with minimal expenditure.
5. Choose equity linked saving schemes. These should help in tax saving. Not only are the returns tax-free, equity yields as much as 15 to 18 percent over a span of few years whereas the returns of the national savings certificates are 8 percent. You do the math and choose where it would be ideal to invest.
Don’t let your money waste away in a bank. You might think a recurring deposit scheme is a good idea. No doubt it is. But, this is definitely not going to suffice during inflation. This is precisely why, it would be ideal to invest 90% of your savings in equity mutual funds and 10% in fixed income returns such as recurring deposits, public provident fund and so on. It isn’t just about increasing the value of your finances, it is also about improving your credit score and credit records so as to be able to avail loans easily and secure your financial future.