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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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.