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.

Limitations of Insurance Certificates

Policyholders mainly depend on certificates of insurance to prove that insurance coverage exists. However, in reality, the certificate of insurance has limited functionality as evidence of insurance coverage. While it may alleviate the potential for additional audit premiums, it is misused and over-valued and can easily leave the recipient with a false sense of security.

Limitations of these certificates:

There are, however, certain issues and limitations with certificates:

1) Possibly compromised limits: 

The limits of liability shown on the certificate of insurance are the exact amounts as shown in the insurance policy when issued. What you will not see is any reduction resulting from a claim and the reduced limits. A certificate is never adjusted to reflect any reductions in limits because of any claims.

2) It does not reflect subsequent changes: 

The certificate contains information on the date of issuance. The next day, either the first named insured or the insurance company could make changes and there is generally no legal obligation on the part of the insurance carrier or its legal representative to provide any notice of changes or cancellations. Some of the changes can be quite significant including: cancellation due to non-payment, at the insured’s request, for underwriting reasons or the exhaustion of the policy limits; reduction or removal of certain coverage or limits from within the policy; or the removal of additional insured status, waiver of subrogation, or primary and non-contributory.

3) Policy terms, conditions limitations or requirements: 

Every insurance policy will contain terms, conditions, limitations or requirements that can cause major coverage defects if not known or properly handled. As a certificate holder, you may not know if your required endorsements, which were properly added or what the requirements are for you to have status as an additional insured. It is imperative to have some understanding of these from another source, as they will most likely not appear on a certificate.

4) Other states coverage:

 Workers compensation insurance is state-specific and the certificate may not list all the states for which coverage is required and afforded. This can become an issue in dealing with claims, audits and liability exposures.

5) Coverage confusion: 

Agents and brokers may indicate that certain coverage or provisions, provided when, in fact, they are not. This can result in a denial of a claim by the insurer. A claim dispute can consume time and money and whether or not you will prevail is subject to many factors, such as jurisdiction, applicable state laws and court interpretations.

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