How to make Investment decisions prudently?
Investment horizon is quite large at present and the people ready to invest is also growing up steadily over the years. Some investments are stagnant in nature like in gold, buildings etc., but prudent investments in financial instruments have really rewarded the investors handsomely over the years-medium to long term periods. Some invest to get high returns and naturally take a little more risk than others. Some invest for a definite purpose like for a marriage of son and daughter, building a house, foreign trips, education of children etc., and people above 40 would like to save for the rainy days. Some people invest with an eye on tax commitments. Some invest directly and some with the help of professionals. The following guidelines will help:
- Ultra-safe investors are assumed to have put 60 % in gilt funds, 40 % in corporate bond funds and nothing in equity. But such people do not avail the opportunity of the good returns in share markets. A small percentage of at least 20- 30 % in share markets preferably through well-known Mutual Funds which invest a part of their fund in Equity as well.
- Senior citizens may avail the maximum benefit of Rs 50,000/ interest rebate for Income tax by investing in Banks and Post offices fixed deposits, R.D etc.,
- If a person prefers to invest in stock market himself directly, he needs to do a lot of homework and choose to invest in diversified sectors like-I.T, Banks, Entertainment industry, Pharma, Automobile, steel, cement etc., sectors. Companies with known promoters, products and with proven past records alone should be the focus.
- On the contrary, people who do not have time and adequate knowledge about the stock market operations may go in for diversified-balanced fund of known Mutual Funds. The best way is to consult approved professionals, Brokers before investing. The professionals are expected to identify the appropriate scheme of MF suiting the age, objectives, time horizon, investible surplus etc., and recommend the schemes with intent to get maximum returns over a medium and long term. One should also consider SIP for hassle-free investments.
- If a person does transactions himself, he is subject to tax liability. But in case of MF one need not pay tax because the transactions are done by MF. But wherever applicable capital gains tax will have to be paid.