FINANCE SPECIAL....Have you chosen a suitable investment option?

Have you chosen a suitable investment option?

    Will you use a crowbar to open a tin can? Or a pen knife to cut a pineapple? Then why do you invest in life insurance policies for retirement and equity funds for your child’s college admission next year? The results will be as messy and undesirable as a tin can opened with a crowbar or a pineapple cut with a pen knife.
    To reach your financial goals comfortably, choose an investment option that suits the time available for the goal. If you are saving for your child’s admission to college in two years, a recurring deposit will give you a fixed amount when you need it. If you want tax efficiency, invest in a shortterm debt fund. Don’t be lured into investing in an equity-linked instrument if your time horizon is short. If the market tanks, it may take months, even years, to recoup your losses. The short-term investor may not be able to wait till the market recovers. “Sometimes, people make the mistake of setting a high goal value for a short-term goal, and then compound the error by investing in equity instruments. In the process, they run the risk of losing their money and not achieving their goals,” says Pai.
    Likewise, don’t buy traditional insurance plans for your retirement since the returns are barely 5-6%. Your PPF investments will not only give you higher returns, but also offer tax deduction under Section 80C and tax-free corpus, the benefits you get from the life insurance policy. The insurance plan may offer a life cover, but the amount is so small that it becomes meaningless for the average investor. A cover of 3 lakh will not have much significance if your family’s monthly expense is 50,000. “If the goal is income protection, you need to buy a large cover with a pure term plan,” says Shah of Bigdecisions.in.
    Also, remember to diversify your investments across asset classes. It is a good idea to set an overall asset allocation for your portfolio besides having an individual asset allocation for each goal.

SAKINA BABWANI ETW131021