There are many investment plans in India, and choosing the right one, especially if you are an amateur investor, can be challenging. To help you make the right decision, we list down a few valuable tips and things to consider while choosing the right investment plan.
Choosing the right investment plan is not just about putting your hard-earned money in a few handpicked mutual funds and stocks that have the potential to yield high returns, but it requires careful planning. Before choosing an investment plan, you must carefully assess your financial condition, define a timeline to achieve the goal, and determine your risk-taking capacity.
If you are an amateur investor, you may feel overwhelmed about choosing the right investment plan, especially when there are various options to choose from. Here is a step-by-step guide to selecting the best investment plan.
- Assess your current financial condition
The first step in choosing the investment plan that helps you build a corpus in the long-run is assessing your current financial situation. Based on your monthly income, you must determine the maximum amount you can afford to set aside for investment purposes after meeting your regular expenses.
- Set a goal
Once you know the maximum amount you can invest every month without compromising the usual expenses, the next step is to define a feasible goal. You must ask yourself, why are you investing? This can be anything, be it building a corpus for retirement, buying a new home, or saving money for your child’s future education expenses.
Apart from fixing the goal, it would help if you also defined a timeline; how quickly do you want to achieve the goal, and how soon do you want the return from your investments. You must decide if you want to achieve fast growth or are comfortable staying invested for a long time and achieving growth over time.
- Determine your risk-taking ability
One of the most important steps in choosing the best investment plan is to decide how much risk you are willing to take. Generally, the earlier you start investing, you can afford to take more risk, as you will have a longer time to recover from losses (if any). But, if you are older, you may have many responsibilities and dependents, it is better to look for a low-risk investment plan.
You must know that high-risk investment plans have high returns potential and vice-versa. If you are a first-time investor and do not have much knowledge about the market functioning, it is better to take the safer path and invest in low-risk plans. As your income increases and you gain experience, you can widen your portfolio, invest in high-risk instruments, and earn better returns.
- Decide where to invest
The final step in choosing the right investment plan is to put your hard-earned money in different schemes based on your financial goal and risk-taking capacity. If you are looking to invest a small sum periodically and low-risk appetite, you can consider investing in mutual funds through SIP (systematic investment plan). You can start a SIP with as low as Rs. 100 per month and stay invested for the long-term to build a considerable corpus.
If your objective is to save for the future, you can invest in the National Pension Scheme or the traditional investment options like the bank fixed deposit or public provident funds. These schemes come in with a lock-in period of five to 15 years, making them an ideal choice of investment for long-term savings. Another significant feature of such schemes is that they have minimal risk, but the returns potential may not be as high as you may get by investing in the share market.
If you are looking to earn a quick profit and want your investments to have high liquidity, you can consider investing in shares. However, to be successful in share market investment, you must know how the market works.
Thus, choosing the best investment plan is a step-by-step process, and it requires meticulous planning and understanding of how each plan works.