Your 5-Steps Guide to Choosing an Investment

While setting aside money each month is necessary, depositing funds in a savings account is not ideal as it generates very little by way of interest. Instead, invest your money wisely in instruments that help you maximise the amount that you can spare from your monthly pay cheque.

Some investment options include PPF, mutual funds, real estate, gold, equity and fixed deposits (FDs). Among these options, FDs are the most preferred by over 95% of Indian investors as per a SEBI report from 2017. This is because they offer assured returns and a pre-determined rate of interest. Therefore, the risk is limited. But, before you invest in any instrument such as an FD, for example, you must compare FD interest rates prevailing in the market and calculate the interest using FD calculator to know the amount you will receive in advance. This will help you get a feel of the returns that you can expect.

To get an overview of how to go about investing your income, look at 5 steps that you must follow.

  • Set your Investment Objective

You must identify the objective for which you are investing your money. This will give you a purpose and help you identify the best way to achieve your financial goal in the shortest span of time given your risk appetite.

  • Calculate the Amount that you can Invest

Before taking an investment decision, you must assess your current financial situation. This will help you understand the amount you are going to be able to invest consistently. Accordingly, you can reassess your investment objectives if need be and work out how best you can manage your finances and achieve your goals without compromising your quality of life.

  • Quantify the Risk You are Ready to Take

Every investment involves certain amount of risk. Before investing in any type of security you must see how much risk you are capable of handling. For instance, if you are just starting a family, you will need funds to take care of your wife and child, and so, your risk capacity will not be as high as when you are in your mid 40s and have a substantial salary and savings. Once you know your financial situation and short- and long-term life goals, decide how much risk you can bear comfortably.

  • Evaluate Your Options

Based on your goal, the amount you are ready to invest, your risk appetite and the timeframe that you have in mind, pick the ideal instrument. For instance, if you are planning for retirement, you must evaluate your options keeping this goal in mind.

In this case, an FD  from NBFCs will offer you a high rate of return and excellent stability post-retirement. When you choose a non-cumulative fixed deposit you can also enjoy returns on a periodic basis. If you choose a monthly interval, for example, you will receive a payout each month that you can use to finance your life. Besides, you can withdraw funds from your FD mid-term or take a loan against it if the need arises.

  • Select the Best Financial Institution

Once you select the type of security that you want to invest in, the next decision you have to make is selecting the right financial institution. If you are investing in an FD, for instance, it is ideal to select an NBFC as they offer higher FD interest rates as compared to banks. This allows you to maximise the returns on your fixed deposit. In addition, they offer excellent customer service and transparency. This makes them ideal for novices and investment experts alike.

So, regardless of your age or income, make it a point to invest an amount each month. Not only will it build an investment habit, in the long run, it will give you unparalleled financial stability too.

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