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Invest in simple, long-term plans

Most of us do not need the 7th mutual fund scheme or the Ulip, pension plan, the new micro-cap fund which invests in Europe

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Investments play a pivotal role in financial planning and are mostly accompanied by risks. This is crucial for novice investors to understand at the outset of their investment portfolio. Investment vehicles, which have pros and cons attached to them also carry equal weight in determining whether the investment plan will turn out to be lucrative for the investor or not. Hence, carefully evaluate your reasons for making investments and be aware of the kind of investment you are choosing.

Most of us do not need the 7th mutual fund scheme or the Ulip, pension plan, the new micro-cap fund which invests in Europe. It is important to understand the product you are investing into. Every product should be easy to break up into expected returns and managing fees. Be wary if the salesperson is not able to explain the product in simple language since the more complicated a product is, the more expensive it will be. Deciphering the product and finding out its cost is another point to consider. An index fund costs about 1% in total costs, and every product should revolve around this number. The higher the number, the greater the risk. Look for listing all costs - one time, regular, and ‘ending’ costs.

Besides, it is pertinent to consider whether the product fits into your over-all plan. So, if your overall plan asked for a savings account, term insurance, index and other funds, you must see if the product fits into the same and whether it will complement your overall plan.

Additionally, it is wise not to get lured into short term products. You do not need a capital protection product which will protect your capital over 4 years. You are a long term investor who understands volatility, standard deviation, and equity returns. Also if it matches your required.

Knowing the lock-in period is another major area to look at. When investing into any product, being aware of the lock-in period is helpful since it provides clarity on the time period - 3, 5, 15 years or more, before which you cannot exit it.

Ever tried surrendering a life insurance endowment plan? One company with whom I used to deal with earlier has made it almost impossible to take one’s money out. So one question to ask the ‘operations’ staff is - What is the process of surrendering the product? Being aware of such details will lead to safe and hassle-free investments.

SMART INVESTOR

  • Most of us do not need the 7th mutual fund scheme or the Ulip, pension plan, the new micro-cap fund which invests in Europe
     
  • Deciphering the product and finding out its cost is another major point to remember while investing
     
  • If your overall plan asked for a savings account, term insurance, index and other funds, you must see if the product fits into the same and whether it complements your overall plan

The writer blogs at www.subramoney.com

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