Before you begin general investment, you need to understand its fundamentals. Investment is usually made for three purposes:
Savings accounts, flexi accounts and liquid mutual funds are some avenues of investment, where you can ensure high liquidity of your funds.
Earning regular returns
Bank fixed deposits, public provident fund, senior citizens’ saving scheme, etc, are the right options here.
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.
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.