A new financial year has just begun. It’s a good time to take stock of our investments. Amid an ongoing pandemic, a war between Russia and Ukraine, and rising inflation, Indian investors are exploring avenues to grow their money despite the challenges.
So, let’s begin this new financial year with positivity and careful financial planning to grow our money step by step.
Financial Planning
The first lesson of your financial planning is to save your money. What you save and how you save are very important for your financial well-being. Make a budget basis your earnings, expenses, and current and future financial goals. Keeping track of your expenses helps you know what priority spending is and what is not. If you feel your savings are low, you can cut down your non-essential expenses and park that money into your savings.
Also, “you might have some financial goals such as buying a house, funding your children’s higher education and marriage, or retiring with a good corpus in your hand. You can bucket each of your financial goals into the short term and long term. For example, buying a car could be a short-term goal, while buying a house can come under a long-term goal,” says Adhil Shetty, CEO, Bankbazaar.com.
Insurance Coverage
Your savings and investment may hit a roadblock due to a health crisis or the sudden demise of key earning members. If you fail to protect your family from these two uncertainties of life, your lifetime earnings and investment may go in vain. Buy suitable life and health policies to protect your health and wealth. It is a type of investment to keep your financial goals safe from uncertainties and risks.
Your life insurance cover is recommended to be 10-15 times your annual income, while for health insurance, you could get coverage equal to 100 per cent of your annual income. You may go higher or lower depending on your income and family requirements.
Tax Saving
You pay taxes to the government over what you earn depending on your income and the tax slab you fall in. Tax saving is essential to ensure you get maximum benefit and save more money to invest for future growth. It is advisable to minimise your tax burden by investing in the tax saving schemes by the government and private financial institutions. Tax saving can be done by parking your money in schemes such as PPF, ULIPs, NPS, tax-saving mutual funds etc.
“The Income Tax Act 1961 deals with tax deductions and exemptions. Sections 80C, 80D, 80CCF and others give clarity on deductions and exemptions. The maximum deduction allowed under Section 80C is Rs 1.5 lakh in a financial year. Many government and private institutions offer a wide range of tax-saving products. They help you save tax besides making you grow your money,” informs Shetty.
Investment And Wealth Creation
Now comes the most exciting part — creating wealth. If you are looking for a medium to long-term investment and have a high-risk appetite, you could go with SIPs in equity mutual funds. Market volatility will help you maximise the return with a great opportunity for Rupee Cost Averaging.
Suppose you are a risk-averse investor and are also concerned about high inflation. In that case, you may invest in the Sovereign Gold Bond (SGB) to earn an interest of around 2.5% per annum along with chances of capital appreciation. Buying gold has always been a preferred choice, but people have realised that making and design charges reduce investment benefits from gold. You could also buy gold through mutual funds and ETFs.
Suppose you are a high-risk taker and looking for higher returns. You may tap investing opportunities of direct investment in equities and international mutual fund schemes, provided you understand these investment products very well. You can invest in the stocks of different companies to earn higher returns, but be prepared for sudden fluctuations.
Moreover, “you may invest in liquid funds, ultra-short duration funds, or arbitrage funds for the short term. Currently, there are chances of multiple interest rate hikes by the RBI. Therefore, the return on long-term debt funds may fall in the near future, whereas liquid and ultra-short duration funds are less susceptible to fluctuation in the interest rate,” advises Shetty.
According to a circular by the Ministry of Finance, a PPF account earns 7.10 per cent, the Senior Citizens Savings Scheme (SCSS) will earn 7.40 per cent, and post office time deposits will fetch 5.5-6.7 per cent. These interest rates will be applicable from April 1, 2022, to June 30, 2022. There may be a change in interest rates post-June 30. You can consider investing your money in these schemes if you are risk-averse. The other two prominent schemes you can plan to invest in are Sukanya Samriddhi Yojana (7.6%) and Kisan Vikas Patra (6.9%).
Find the right mix for your investments as per your financial goals, and avoid depending on any one investment. When in doubt, consult an investment advisor to help you find the right mix.