Finance - Basic Precautions To Be Taken Before Making Investments

One of the most important aspects of any financial planning is making investments to get a decent growth. Not many people are capable of taking risks in financial matters.

There are many low risk investment options available, like mutual funds, blue chip stocks, fixed income bonds, savings account, fixed deposits in banks etc.

Apart from the abovementioned investment options, many more choices are available. Your investments in them will see long term capital appreciation capable of yielding higher returns. The other advantage of making investments in these plans is that they are low risk.

At the same time it should be understood that if you have invested money expecting higher rate of returns, it may not be completely risk-free. Therefore it is important to understand all the aspects of investments that will enable you to make decisions for planning your future.

Traditional saving schemes:

While making investments many people think of traditional saving plans that are considered as investments of lowest risk. People go for them since the money is safe. But at the same time it will not grow at a fast pace. Sometimes the value of your investment may go down due to rising inflation.

Fixed deposit accounts:

When making investments in fixed deposit schemes of companies make sure that you read the instructions in fine print. To be on the safer side, it is better to invest your money in a reputed and established bank. Ensure that your investment is protected by insurance.

The return that you will get from your fixed deposit investment will depend upon whether your bank is compounding interest on monthly or quarterly basis. You stand to get better returns if it is compounded on monthly basis.

Find out if your bank will impose penalty if you withdraw money before the date of maturity.

Investments in mutual funds:

If you plan to invest in mutual funds you must go through the track record of the fund. Decide whether your investment goal is a long-term or short-term. If you stay invested for a longer period your investments are likely to yield good returns. A minimum period of five years is considered ideal.

Choose the investment schemes after a thorough analysis. If you plan to invest in equity funds go for growth option and stay invested for 3-5 years. In case you are interested in investing in a debt fund, invest in dividend fund. If your purpose is to save tax you can opt for tax saving funds.

Investments in stocks:

There is a lot of volatility in stock market. While making investment in this sector, you must make a well informed decision. Don’t be in a hurry to risk your hard earned money. You don’t have to be impulsive.

Just because some of your friends claim that they got very high returns from a particular stock, you should not impulsively invest in the same stock. Some research will stand you in good stead. Learn well about the stock in which you plan to invest. As a thumb rule don’t pay too much for a stock. If your stock is losing, sell it.

It is always better to consult a financial advisor before making investments. Do not put all your eggs in one basket. Diversify your investments into various schemes and select the ones after you have carefully studied fine print.