A typical day in the life of an average urban Indian involves going for work in the mornings and then returning in the evening to spend some quality time with family. We work hard and to earn enough money to maybe buy a car or a house or even afford a family vacation. We worry about funding our children’s education, their marriage and our own retirement years. Money in our lives serves multiple purposes. However, just earning money will not help us achieve our financial goals. For this, we must invest.
Why the need to Invest?
Grow your money: Investing is the path to growing your wealth. A smart investor will ensure that the money they have earned, works for them to grow and generate more money. The Indian markets offer an entire portfolio of products from fixed income securities and equities to alternative investment funds. These products are designed in such a way that they suit the risk profile of each and every investor and generate low, moderate and high returns. Additionally, investors who stay invested for the long-term can benefit from the power of compounding. Through the magic of compound interest, your accumulated interest actually earns additional money without you having to lift a finger. Consequently, your original investment can multiply greatly over time. For example, if you invested Rs. 1,000 at an interest rate of 7 percent compounded annually, your investment would grow to Rs. 7,612.26 after 30 years.
Achieve financial goals: Just keeping your money in the bank is not going to help you achieve your financial goals. Some of our goals are short-term in nature, while others are long-term in nature. In order to achieve our goals, we need to invest keeping in mind the required rate of return, investment time horizon and our risk profile. Once these are determined, we need to select our investments for our portfolio that can help us achieve our goals.
Manage Tax Liability: While reducing tax liability should not necessarily drive your investment decisions, you must be cognizant that investing can play an important role in helping you minimise tax outflows. Meaningful tax planning entails investing in schemes and securities that the government has designated as “tax-free”. These investments can help an investor claim deductions under various sections of the Income Tax Act, thereby lowering net taxable income.
Inflation Protection: Stuffing money under the mattress does not only makes for uncomfortable sleeping it also does nothing to mitigate the impact of inflation on your money. Inflation refers to a general rise in prices ie. the same product will cost the more after a period of time. Thus, in order to afford the same product after a period of time, the value of your money also needs to grow in line with inflation. Over time, money that is not invested judiciously, loses value.
Creating an investment portfolio that can fulfil all the above objectives can be challenging. This where a financial advisor can play an integral role. Financial advisors can help investors determine their risk return requirements and then create a diversified portfolio that can meet the return objectives while staying within the defined risk parameters.
Failing to invest judiciously is planning to fail your financial dreams.