As I wrote in my previous blog post, Best Investment Options In India, there are 10 different Best Investment Plans available in the market. One cannot invest their savings in all of the options available. So, You have to select the plan that suits your needs. It depends on –
- Your Age
- Financial Position
- Expected Rate of Return
- Time Frame (Investment Horizon)
I will try to explain how these things will affect your investment strategy by explaining all. You can decide what kind of risk and what kind of investment plans suits you.
Factors that Affect While Choosing Best Investment Plan: –
1. Age: –
If you are below 30 years of age, you can take the high risk as your goals will have a longer time frame to achieve the said goals like Children Education, Marriage. In these cases, you can invest more in equities than low yielding bond schemes.
If your age is around 45, you can’t take high-risk investments as your goals are very near. It is not advisable to invest your corpus in stocks when your investment horizon is less than 3 years.
2. Financial Position: – Let’s take an example, that Mr Arun is working as a software engineer from the age of 22. Now, He is 30. Let’s assume that Mr Arun’s
Net Salary is Rs.45000.
Monthly Surplus is Rs.30000.
Invested in Bank Recurring Deposit.
@ 8% Interest Rate, He could have Rs.40,33,505 of Maturity Amount.
Whereas Mr Kumar got a job at the age of 30. Both are working in the same firm. Now they want to start investing for their goals like Children Education, Children Marriage, Buying a House, Buying a Car. Arun & Kumar cannot choose same investment plans.
Arun has a corpus of Rs.40 Lakh whereas Kumar doesn’t have a penny. Arun can right away start investing in stocks by studying the fundamentals of the company on his own or he can choose to take the help stock advisory services by paying the subscription fee and invest his corpus amount of Rs.40 Lakhs in 10 to 20 companies. This one investment plan can achieve his Children Education & Marriage goals.
Whereas, Kumar should start building his corpus by investing his monthly income in Systematic Investment Plan (SIP) by selecting few mutual funds by knowing the details of the fund historical returns, the fund manager and the investment mantra of the fund. Kumar has to invest more than Arun to achieve his goals by saving more.
Arun can Buy a House and Buy a Car by taking a loan from the bank with the monthly surplus. He can fulfil his Dream of owning a House and a car.
Whereas, Kumar cannot Buy a House and Car because he has to invest for his primary goals first. He has to adjust to a rented house and public transport. Of course, If Kumar monthly surplus amount is really high which can be adjusted to SIP payment and Bank EMI, He can go for both options. If you are in Kumar’s position, you should first calculate the amount of money you need for each goal and amount of monthly surplus.
3. Goals: – Goals play a very crucial role in choosing the right investment plan. Goals should be realistic & achievable. Indians usually have the following goals –
- Children Education
- Children Marriage
- Owning a House
- Buying a Car
First, you should plan for Primary goals.
4. Expected Rate of Return: – The expected rate of return can be assumed by taking the historical performance as a measure but this doesn’t guaranty the future return. Let’s assume that you have decided to invest in Franklin India Prima Fund. This fund has generated 23.49% of average return over the last 10 years and you have allocated 30% of your corpus. You have invested remaining 70% in debt fund. It’s expected rate of return is 8%, we have the following:
Expected return (portfolio) = (0.23)*(0.3) + (0.08)*(0.7) = 0.125, or 12.50%
5. Time Frame: – Each goal has a different time frame. Measure the time frame, measure the expected rate of return of asset class you have chosen, measure the monthly surplus available, measure required amount needed for each goal, then take a decision on which Investment Plan suits your needs.
Among the 10 Best Investment Plans and their sub plans, you can choose the best plan according to your need. I will explain the need and the fund you can opt for.
Investment Plan You Need to Choose As Per The Need: –
You need to choose Investment Plans as per the need. There are usually 5 kinds of needs.
- Emergency Fund
- Short-Term Goals
- Long-Term Goals
- Monthly Income
- Tax Saving
Best Investment Plans for Emergency Fund:
- Liquid Mutual Funds
- Savings Bank Account
- Locker at Home
You can read complete post on Emergency Fund Investment Here
Best Investment Plans for Short-Term Goals:
- Bank Fixed Deposits
- Bank Recurring Deposits
- Short-term Debt Mutual Fund Schemes
- Equity Linked Saving scheme(ELSS)
- Arbitrage Funds
Best Investment Plans for Long-Term Goals:
- Equities/ Stocks
- Mutual Funds – Equity-Based
- Public Provident Fund (PPF)
- Sukanya Samriddhi Deposit Scheme (For Girl Child)
- Real-Estate investments
Best Investment Plans for Monthly/ Quarterly Income:
- Bank or Post Office Monthly Income Scheme
- Bank or Post Office Senior Citizens Savings Scheme
- Bank or Post office Fixed Deposits
- Rental income from Real estate property investments
Best Investment Plans for Tax Saving:
- Equity Linked Savings Schemes
- Provident Funds
- Tax Saving Mutual Funds
- Public Provident Fund (PPF)
- Sukanya Samriddhi Deposit Scheme
Now, take a piece of paper and write down your goals first. Categorise them whether they come under short-term or long-term or immediate requirement. Then shortlist the investment plans that suits your requirements. I will explain Emergency Fund, Short-Term Goals, Long Term Goals & Where Monthly Income is needed and explain each and every investment plan that I have mentioned here in detail in the upcoming blog posts. Thanks For Reading…