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23709Ten Tips for a good Financial Planning & Investments

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  • P Nair
    Oct 4, 2013
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      Ten Tips for a good Financial Planning & Investments
      1)     Don’t invest in any financial products without understanding the actual return potential and risk aspects of the product you are planning invest in.  Read the fine prints carefully, try to understand, make a comparative study with the similar products available in the market.  Do not invest at seeing colorful and attractive advertisements, leaflets etc.  Also, please careful about the brand ambassadors, suppose your favorite celebrity acting as brand ambassador for that company, that doesn’t mean that, the product he promoting is good to buy.  His intention is to make cores and cores of money and he does not bother about whether the end user is going to benefit out of it or not.   In case you find it difficult to understand the products, take the help of an expert financial planner.     Keep this in your mind that, the money you are going to invest is your hard earned money and the investment is going to be made with the expectation of earning a reasonable return without risking the original amount invested.  
      2)     Track your portfolio/investments regularly, review each and every products in your portfolios on a regular interval, if you feel that, some of the investments are not giving returns as per your expectation or in line with the similar products available in market.  Watch the performance for one or two quarter, still its not improving or showing the sign of improvement remove those investments from your portfolio and look for a better investment option.  
      3)     Keep this in mind that, the return of any investment is not what actually get credited in your bank account or interest/dividend cheque you received from the company or bank. The actual return is what you get in hand after paying the taxes (income tax, capital gain tax et etc.) and also you need to adjust inflation factor.  So the actual return should be net of taxes and cost inflation factor.  Eg.  You are earning 9% interest on your bank fixed deposits and present cost inflation is 8%, in this case the inflation adjusted return is only 1%.   When you make investments, if possible select investments whose returns are tax free or exempted from capital gain tax
      4)     In case you wanted to beat inflation, you need to invest in high risk and high return assets like equities  or real estate. The traditional bank term deposits, company deposits, Post Office MIS  etc can maximum provide you a return in the range of 8-10%,  when you adjust the inflation factor, your actual return may be much less or even some times negative.  So, start investing some amount (depends up on the risk and return appetite of the investor) in equity market, mutual funds or similar investment products.  On medium to long terms basis, those investment are capable of beating the inflation.  A wise investor can earn a return in the range of 12% -15% from these types of investments in the long term.
      5)     For protecting yourself and your family for the money required for the treatment of any illness, take suitable  mediclaim health insurance policy form one of the trusted insurance companies.  This will protect your family for any extra amount required for the treatment of your family members and you are not required to liquidate your existing investments or take a loan from a bank or money lender, this is basically not an investment option but this will act as an insurance or protection of your investment.  
      6)     In case you are not an expert in stock market investments, its better to investment in good performing Mutual Fund schemes rather than direct investment in stock markets.  The expert fund managers in the asset management company will take care your investments and do the needful by way of selecting, buying and selling of securities on behalf of the unit holders of the mutual fund schemes you have invested for.
      7)     In case your risk appetite is low, try to use the Systematic Investment Plan (SIP) route of investments for both Mutual Funds and Equity investments.  This will average your cost of investments, enhance the return potential and reduce the risk of losing your capital. Do not stop your investments like Mutual Fund SIPs or insurance policy premium just because the stock market is down. You behave like an intelligent investor when you start investments and become genius when you see correction in the market. You start saying "market will surely go down further." It's better to invest more when all others are selling. This is the ONLY way to make friendship with stock market
      8)     If you are planning to invest in stock market directly, invest with strict stop-loss and aim for target price.  Once that target is achieved or the prices come down to a certain level, go and sell your shares to limit the loss or book the profit.  If you are over confident or sure about the performance of the security, you can hold those securities absolutely at your personal risk.   Before selecting a stock for investment, study the fundamentals of sector, company, management of company and technical charts etc.  Stock market is like a magnet, be careful.
      9)     Always take term insurance policies to cover your life risk.  It won't give you anything at maturity but will surely take care your family, in case of your sudden death. Your wife will not try to seek a job at older age as she has sufficient funds to manage all responsibilities.  Don’t consider buying insurance products as investments, it’s a protection against any future eventuality of any unexpected events like death, illness or disability etc.   
      10)  Always think positively and take investment decisions rationally.   Don’t trust the investment/insurance products selling agents (either individuals or corporate). Most of their aim is to make money and they are not bothered about your financial wellbeing (don’t think that, all financial products selling agents are like that, there are exceptions too) It is you to decide, whether your agent or financial adviser is doing justice to your investment or they are keenly interested in your financial wellbeing rather than earning their share of commission.
      Best Regards
      Prakash Nair
      Certified Personal Financial Advisor (CPFA)
      Certified Wealth Manager (CWM)