Learn about investment planning

The process of investing allows you to grow, rather than maintain, your savings for greater financial rewards in the future. Investment planning requires the assessment of many different investment options to choose the right vehicles for your assets, such as stocks, bonds, and mutual funds. 

Why investment planning is important:

Liquidity – How easily an investment can be converted to cash, since part of invested money must be available to cover financial emergencies.

Risk tolerance – The biggest risk is the risk of losing the money that has been invested, but the main thing is to how much investor can cover up and sustain with that. Another equally important risk is that investments may not provide enough growth or income to offset the impact of inflation, which could lead to a gradual increase in the cost of living. There are additional risks as well (like decline in economic growth). But the biggest risk of all is not investing at all.

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Return – Investments are made for the purpose of generating returns. Safe investments often promise a specific, though limited return. Those that involve more risk offer the opportunity to make – or lose – a lot of mone

Steps to creating your plan

Set specific and realistic goals

For example, instead of saying you want to have enough money to retire comfortably, think about how much money you’ll need. Your specific goal may be to save $500,000 by the time you’re 65.

Calculate how much you need to save each month

If you need to save $500,000 by the time you’re 65, how much will you need to save each month? Decide if that’s a realistic amount for you to set aside each month. If not, you may need to adjust your goals.

Choose your investment strategy

If you’re saving for long-term goals, you might choose more aggressive, higher-risk investments. If your goals are short term, you might choose lower-risk, conservative investments. Or you might want to take a more balanced approach.

Develop an investment policy statement

Create an investment policy statement to guide your investment decisions. If you have an adviser, your investment policy statement will outline the rules you want your adviser to follow for your portfolio.

Your investment policy statement should:

• Specify your investment goals and objectives,

• Describe the strategies that will help you meet your objectives,

• Describe your return expectations and time horizon,

• Include detailed information about how much risk you’re willing to take,

• Include guidelines on the types of investments that make up your portfolio, and how accessible your money needs to be, and

• Specify how your portfolio will be monitored, and when or why it should be rebalanced.

Some invest planning options:

National Savings Certificates (NSC): National Savings Certificates are also tax free deposits allowing you to save up to Rs.1.5 lakhs under Section 80C of the Income Tax Act. Any deposits made under NSC, however, are not tax free as understood wrongly by many investors. But the interest earned can be re-invested to save tax under the same section.

Rajiv Gandhi Equity Saving Scheme (RGESS): Rajiv Gandhi Equity Saving Scheme (RGESS) offers tax savings up to 50% of the invested amount for the first year for a first time investor. So if you are a first time investor, you can claim a deduction of 50 percent of the invested amount subject to a maximum deduction of Rs. 50,000. However, the deduction can be claimed by only those who have an annual income below 10 lakhs.

SIP investments:

SIP is a method of investing a fixed sum, regularly, in a mutual fund scheme. SIP allows one to buy units on a given date each month, so that one can implement a saving plan for themselves. The biggest advantage of SIP is that one need not time the market. In timing the market, one can miss the larger rally and may stay out while markets were doing well or may enter at a wrong time when either valuation have peaked or markets are on the verge of declining.

Equity Linked Savings Scheme (ELSS):

An Equity Linked Savings Scheme (ELSS) is an open-ended Equity Mutual Fund that doesn't just help you save tax, but also gives you an opportunity to grow your money. It qualifies for tax exemptions under section (u/s) 80C of the Indian Income Tax Act.