Before you begin general investment, you need to understand its fundamentals. Investment is usually made for three purposes:
Parking funds
Savings accounts, flexi accounts and liquid mutual funds are some avenues of investment, where you can ensure high liquidity of your funds.
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Earning regular returns
Bank fixed deposits, public provident fund, senior citizens’ saving scheme, etc, are the right options here.
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Growth
A well-diversified equity portfolio of blue-chip stocks, or systematic investment and systematic transfer plans into mainline diversified equity mutual funds are wealth-enhancing (growth investments). Real estate is also a good, long-term growth investment avenue, provided you can manage its drawbacks.
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Begin general investments, irrespective of its objectives such as providing for your child’s education, only after:
- Taking out adequate insurance.
- Establishing an emergency fund.
- Setting up a retirement fund, no matter how small your monthly contributions to it are.
- Buying a house.
- Extinguishing undesirable or excess debt.
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The following are not part of a general investment plan. They form the basic financial foundation, on which you can add the superstructure of general investment.
- An emergency fund – this is an investment, but with an insurance-like objective. So, it’s not considered a part of the investment portfolio.
- A retirement fund – this is for a specific purpose: to cater to your needs after retirement or when your ability to earn has reduced.
- A house – the objective of this investment is to provide security and shelter to you and your family, not to encash the value when the price goes up. So, the value of a single residential house is not included in your investment portfolio.