Why Should You Start Investing Early In The Life Insurance?
Many of us people think it is absurd to purchase the life insurance plans at an early stage of life, because you are too young to die and have a whole lot of life to earn and save for the life insurance plans, but truly speaking, the life insurance plans should be bought in the early years of your working life. Even if you go and ask any of the financial planner or advisor, they will also suggest you to go and purchase the life insurance in the early years of your earning.
Owning a life insurance is not a sign that you are near your last days, but it symbolizes your smartness and the ways how wisely you have planned for your family and loved ones even if you are not around to take care of them. Most of the people are unmarried in their early years of the earnings and they do not think that there is any need for the life insurance right now as they have not started off with their family life yet.
But think about it twice, once the family life starts, the responsibilities gets doubled, the expenses increases, the family needs to take some important investment decisions for the settlement of the family or the buying of a new house, or any thoughts about the family planning in the upcoming future years and so on the expenses keeps on increasing.
When do you exactly have the time to save from your mere income from which you serve the family, take care of your dependents and even pay for the mortgage?
When you are the only bread bearer of the family then you need to have a life insurance. The life insurance is the best investment plan to safeguard of the future of your loved ones after something happens to you. You can take care of your family members even when you are not around. The life insurance plans provides the death coverage for any uncertain event. The death coverage helps the family in the times of any financial crisis or provides them the financial strength and stability to carry on with their lives smoothly.
Read here: Complete guide on Covid-19 Medical Insurance
The Younger You Purchase The Life Insurance, The Better It Is
You would not want your family to suffer from the financial problems when you are not around and thus you would definitely want to set aside some amount of money that is more than enough for all the future needs of the family and the uncertain events that may occur in the future. And if you begin saving for your life insurance in the early years of your life then you can save more than others and can also save it very cheaply. As it is always said the younger the merrier.
Here are some of the major reasons which will support you in the purchasing of the life insurance while you are young –
- Health is wealth. It is a known fact that you are much more healthy and energetic in your twenties than you can be in later years, so you can work hard to earn more money and can start your life insurance soon by savings and investing with almost 10% of your total earning. And life insurance companies also rely on the health of the individual at the time of the issuing of the life insurance plans. You are prone to a large amount of premiums if you start your life insurance in later years when you are not as healthy as in your twenties.
- You can get loyalty benefits for being a long term client to the life insurance company. The companies provide lots of loyalty benefits to their clients in order to be competitive in the market. And if you have started off with your life insurance in early twenties, then by the time you are in your fifties, you would have earned a lot of life insurance loyalty benefits.
- Life insurance provides you the cash value. The cash value of the insurance amount is so much important factor. On the basis of the cash value, an individual can take loans and borrow money from the banks. The policy loans need to be taken for any major life events in the future years and thus there is another advantage of having a life insurance early.
- Save you money. It is always said to save your money, but keeping aside the money can reduce its time value and thus life insurance is the best way to invest the savings if you are a conservative investor.
- You can also get various tax benefits. The premiums for the life insurance plans reduce the total taxable amount and thus one can use it to save their income tax as well.
- The younger, the cheaper. This is true for life insurance, as you have a long period of time to save a huge pile of wealth for your loved ones, and you can also do it with cheaper premiums.
So these were the important reasons why you should be insuring yourself in the early years rather than waiting for your mid 40s when premium will be too high.
Should You Invest Directly In Equity Or Via Mutual Funds?
Investment done at any age is a good way to get a large amount of corpus on maturity. While doing investments, many people get confused whether to invest in equity, mutual funds, SIP or through other Investment instruments available. It has always been a tricky question whether you should invest directly in Equity or via Mutual funds. These decisions often make it difficult for people to decide how to invest. In order to avoid any confusion, regarding this, let us help you explain in detail about investments done through equity or mutual funds.
Investment done through any of the forms are done with the sole motive to earn profits at the end of the day. But there are two ways of investing. Either you can do it directly through equity i.e. buying and selling stocks yourself, which does require some form of dedication and willingness to understand the market. The other method is by investing through mutual funds backed by equity. In both the cases, sufficient knowledge of the market, proper market analysis and implementation and execution at the right time is required.
Best Points For Comparison Of Investing
Below mentioned are few points which will help you understand better about where investment can give higher returns and which one to select:
Volatility : – Volatility is higher in stocks in comparison to mutual funds. When comparing stocks and mutual funds for the past 6 months or one year, it is seen that stocks show significant levels of volatility compared to mutual funds. The volatility in the valuation of stock prices can easily be triggered by an announcement, performance or an event, whereas same is not the case with mutual funds as it is diversified.
Research and time :- One should consider investing in direct equities if you have the adequate time to invest in research and monitor the timely activity going on in the market. Along with that, one also has to invest considerable time in keeping abreast of the economic developments going on to understand the equity price fluctuations. However, if you do not have a lot of time to keep pace with market changes, latest trends etc, you can make investments in mutual funds. Investing in a SIP through mutual fund is the best way to invest.
Long term investment : – If you are looking for a long term investment, in that case, mutual funds can be a better option as they accumulate higher returns over the years with less risk factor associated with them. Many types of mutual fund options are available for long term investment. Direct equity trading i.e. buying or selling stocks on your own is considered as a short term profit.
Short term gains : – Direct equity is the best form of short-term gains if you have a clear idea of the market and your perspective is clear as in when to buy or sell the stocks. If you think you are able to generate the fair amount of income from these sources, the sale and purchase of stocks on a daily basis can be a good idea. However, it is quite important to understand that the person who is trading in stocks directly needs to have a clarity of the market and have its complete knowledge.
An amount required for investing: – Depending upon the amount of investment, there is a huge difference between direct equity and mutual funds. When you can simply start a mutual fund with as low as INR 500 – 1000, trading in stocks requires a considerable amount of money, to begin with.
Which Is Beneficial: Direct Equity Or Mutual Funds
With a lot many factors discussed above, we come to the understanding that there are different benefits in both the cases. However, if you want to go for long term gains with small amounts of investment, mutual funds are the option and if you have a large sum to take a risk and are looking forward to short term gains, you can select direct equity.
Mutual funds Is a better choice
If you wish to enjoy a long-term return on your money, the mutual fund will be the better option. Also with research and surveys conducted by many financial companies, it has been seen that mutual funds performance has outweighed that of equities.
Seeking Help Of A Financial Advisor
You can always take the help of a financial advisor if you are not aware of the market trends or how to acquire the best knowledge. A financial advisor can also advise you to diversifying your portfolio or explain the best option out of the two i.e. Mutual funds or Equity. Download Fintoo app to Invest online.
8 Common Investment Mistakes You Must Avoid
Strategies of wealth management are some basic fundamentals that everyone should be aware of. The power of intelligent investment in the creation and multiplication of wealth is indisputable. However, many of us are not aware of some basic flaws that every investor might fall prey to. We often treat terms associated with investment strategies as financial jargons meant only for the erudite. But, working knowledge of investment is not hard to gather. Armed with this basic knowledge, we shall be equipped to make sure that we are not losing our hard-earned money.
In this article, we shall explore 8 common mistakes that investors have been making over the years and which should be avoided in order to facilitate long term wealth accumulation.
1. Ignoring Insurance
We cannot emphasize how important it is to have a well-suited insurance policy in place. Insurance policies make sure that the well-being of you and your loved ones are safe-guarded in case of any unforeseen circumstances. It provides you the knowledge that your family will be taken care of, your children will be provided for and all your financial commitments will be honoured even in your absence.
However, I have met many youngsters in their 20s who believe that they are invincible and thus above the purview of insurance policies. They forget that it is when you are young that the policies are cheapest and as you grow older, the policies keep getting more expensive. Hence, chances are that by the time you realise the indispensability of insurance policies, you will not be eligible for many of them.
Moreover, as the money in terms of periodic premiums keeps accumulating, you are privy to a bank of forced savings that have very low-risk factors associated with them. Moreover, insurance premiums are also eligible for tax benefits. Thus, when the insurance term matures, you have access to funds that will supplement your retirement plans.
2. Confusing Between Investing and Trading
Although these terms are often used interchangeably by young investors, there is a world of difference between investing and trading. If one is not completely aware of the ropes of the market, chances are they expose themselves to financial losses by trading with the wrong stocks. However, a diversified portfolio with equities that have a proven track record will help grow your savings in the long run at a moderate risk quotient.
3. Basing Investments On Ups and Downs Of Stock Market
If there is anything you should know about the stock market, then you should know that it is volatile. Stocks performing big on the first hour of the day might end up losing big as well as the day progresses. Thus, gambling your money away on the ups and downs of the Sensex arrow is never advisable. It is much more prudent to invest in healthy stocks with a proven 5-10 years track that will appreciate your wealth slowly but steadily.
4. Too Short Of Time Horizon
The golden rule of investment states that the longer your money stays invested, the greater are your returns. Such is the beauty of compounding interest. Thus, if you constantly keep taking out money from your investments, you will never be able to accumulate enough interest. It is due to this reason that most investment vehicles like fixed deposits, provident funds and ELSS mutual funds have a certain minimum lock-in period.
5. Not Starting Early Enough
The old proverb goes-“The early bird catches the worm”. Indeed, it is never too early to start investing. In fact, the earlier you start investing, the higher you end up gaining in terms of returns due to the magic of compound interest. Let us illustrate this phenomenon with an example.
Mr. A starts investing at the age of 20. He invests Rs X in a scheme that doubles his principal amount in 10 years. Thus at the age of 30, his investment grows to 2X, at the age of 40, it grows to 4X. At the age of 50, he has 8X and he has 16X when he is ready for retirement.
Now, let us consider B starts investing when he is 30. He invests Rs X in the same scheme as A. But when he turns 60, he ends up with only 8X amount. He has lost eight times his initial investment by starting 10 years later. You get the picture, right?
6. Not Having A Systematic Investment Plan
By investing small amounts regularly in a SIP, you gain the following advantages:
- Since you do not have to come up with a lump sum amount to invest, you don’t feel a financial burden or the inability to honour prior commitments
- You become a more disciplined investor
Trust us when we say that if you do not have a Systematic Investment Plan, you are losing out on your money.
Must read:- Why Do You Need Insurance Along With SIP To Create Wealth?
7. Complicating Things
Many investors have the habit of dabbling in different equities every year. This makes it all the more difficult to stay top on your portfolio and make informed decisions. Instead, a well-chosen basket of consistent stocks in your portfolio serves the purpose of wealth multiplication quite well. And it keeps things simple.
8. Working With the Wrong Advisor
Of all the investment blunders that you might perform, this is perhaps the gravest. A wrong investment advisor will result in more than just financial losses. Thus it is very important to study the past performance of a financial advisor before choosing one. Moreover, keeping an eye on your portfolio is advised and with good reason.
Investment strategies might be a dime a dozen. The onus of choosing one that works for you lies with no one else. However, with a little amount of research and determination, carving out the path to glory is not that difficult as long as you are avoiding the pitfalls that we have outlined above. Start early, keep investing small amounts in regular intervals and watch your wealth grow. You may download the Fintoo app to start your investment now.
A financial planning platform where you can plan all your goals, cash flows, expenses management, etc., which provides you advisory on the go. Unbiased and with uttermost data security, create your Financial Planning without any cost on: http://bit.ly/Robo-Fintoo
To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP‘
Disclaimer: The views shared in blogs are based on personal opinion and does not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Making an investment using the app is the sole decision of the investor and the company or any of its communication cannot be held responsible for it.
Emergency Fund – What it is and Where to invest?
Emergency Fund as the word itself says it is a fund which can be utilised in case of an emergency. Emergency can come anytime. You will not know in advance what unforeseen event is going to knock on your door. It could be a job loss or medical emergency with any family member or yourself. In the worst case it could be an unexpected demise of an earning member in the family.
The interesting thing about emergencies is that you cannot predict what will come and when. For instance, nobody would have ever imagined the emergence of a highly contagious and deadly disease all over the world and that it would spread exponentially affecting global economies. The impact is not limited to health but also wealth. People are losing their job or experiencing substantial pay cuts or leave without pay. In such a situation, we realise how important it is for everyone to keep an Emergency Fund. It will help you to manage your expenses without borrowing or affecting your other ongoing investments.
Now that we realise the importance of having an Emergency Fund, let’s understand where we should invest this money.
The two most important factors to be considered while making an investment for emergency fund are –
1. Liquidity – One of the most crucial things is that this money should be readily available. Whenever you need, you should be able to encash it immediately. This means that you cannot invest this money in a PPF account or real estate. Because when you will need it, you will not be able to encash it because of no or low liquidity in these options. Therefore, look out for highly liquid assets.
2. Low Risk – The second most important thing is that this money should be invested in a low risk asset class. It implies that you should not be investing this money in the share market. Although the share market is highly liquid, the volatility is also very high. We would not want to withdraw from such investments by booking losses. You should know that equity market investment is for the long term and is highly volatile. So there might be a situation where you need money but the market is down so you will be forced to withdraw at a loss. This is happening currently with investors who don’t have any emergency corpus.
So based on these two factors, what are the options available to us?
1. Saving Bank Account
Many people prefer to keep emergency funds in their savings bank account. No doubt, it is highly liquid but it gives hardly any returns. Currently, the saving bank accounts are offering 3-5% p.a. which is not even covering the inflation cost. So it’s not a good decision to keep your entire money in a savings bank account.
2. Fixed Deposit
A fixed deposit (FD) is a financial instrument provided by banks, that provides investors with a higher rate of interest than a regular savings account, until the given maturity date. The defining criteria for a fixed deposit are that the money cannot be withdrawn from the FD.
The level of liquidity is low. But you have the option to withdraw with the penalty. To compensate for the low liquidity, FDs offer higher rates of interest than savings accounts.
3. Liquid Mutual Funds
A liquid fund is a type of mutual fund which invests primarily in money market instruments, like treasury bills, commercial papers, certificate of deposits and term deposits. They allow Investors to park their funds for a few days or months as they have maturities up to 91 days.
Liquid funds can be made liquid at any time and earn returns for the holding period. Because they earn a return from market instruments, liquid fund’s returns can rise or fall depending on the market rates. For very short debt, Market interest depends on the liquidity situation.
Read More :- Importance of Continuing SIPs Amid COVID-19
Let us compare Liquid Mutual Funds with Fixed Deposits
1. Liquid funds are easily accessible as compared to bank FDs. Bank FDs would penalize you for premature withdrawal. Liquid funds do not have exit loads.
2. As per past records, liquid funds prove to give better returns than fixed deposits. It would range between 6% to 8% per annum. On the other hand, bank fixed deposits offer returns depending on the tenure. Lower the tenure, lower the interest rates.
3. Since liquid funds invest in short-term securities, it has lowest interest rate risks. When interest rates fall, bond prices go up. When interest rates rise, bond prices fall. The negative relation between bond prices and interest rates is stronger for long term bonds. This means that the longer the maturity of a bond, the more it responds to changes in market yields. Since a liquid fund invests only in short term securities, it’s market value does not respond much when interest rates change in the market.
4. Tax treatment: If you sell them before 3 years, any gain needs to be added to your income and you need to pay income tax based on your tax bracket. Fixed deposits are also taxed the same way even if it is more than 3 years. However, if you redeem liquid mutual funds after 3 years so will have to pay tax of 20% with indexation benefit. This will be fruitful for investors in the higher tax bracket.
Conclusion
If you want to park your money for a short term or immediate requirements, liquid funds would be the best bet for you. Consider the above factors before investing in such funds. Investors can choose good liquid mutual funds based on past years performance, low expense ratio, high Assets under Management (AUM) and well diversified portfolio.
So don’t wait any longer, create your emergency fund today by investing in Liquid Mutual funds. You can do this by downloading the Fintoo App.
8 Best Moves For First Time Investor
Investment is indeed a very good option to begin with managing your finances and to put the money at work for you. The investments are not just to grow your money but they are also a way to secure the future of yourself and your loved ones. It leads to the ownership of various assets and can also get you a high amount of returns on the investment capital.
Before you begin with the investment of your wealth into the various schemes in the market, you should always acquire apt information about the schemes and plans. The investment can lead to a successful attempt to gain your profits or it can be a failure leading to some losses. So it’s important that you make an informed decision by understanding how and where to invest. It is suggested that you do not take any decision in haste. The investment not just helps you in gaining the returns over the invested capital income but also helps in reducing the net taxable income during the filing of the tax returns.
Investments should be made as soon as a person starts earning. Starting the investments in the early stages of earnings can help you to create a very strong financial portfolio. You can own a lot of assets by making proper financial decisions.
What Is The Importance of Investment?
- Investment helps you to put your money into work so that you can gain maximum returns out of it.
- It helps to cope up with inflation. So that you don’t have to compromise on your lifestyle.
- Investment helps in reducing income tax returns.
- Investment plans can provide you money in times of need and uncertainties.
- Investments are made for securing the future of the individual and his loved ones.
- Investing into the schemes helps to create a strong financial portfolio.
So, now we know the importance of investing. We understand that making investments may seem complicated for first-time investors as it can be confusing at times. Also, as first time investors, we recommend Mutual Fund investments rather than investing directly into the share market. So here are few moves for a first time investor that would help you to get started for the best experience of investing through Mutual Funds
- Get your KYC done: First thing any new investor needs to do is complete KYC process. You can also get it done online, called as eKYC. eKYC is a paperless Know Your Customer (KYC) process. It is a part of Account Opening process with any financial entity. KYC establishes an investor’s identity & address. The purpose of authentication is to enable a person to provide their identity and for the service providers to supply services and give access to the various benefits. Without KYC, you can not start investing.
- Decide a Goal: Once your ekyc is done, the next step is to decide a goal for which you would want to invest. The goal could be anything like buying a house or a vehicle, higher education expenses, wedding cost, retirement etc. It is suggested that you do not just invest anywhere because you have surplus cash. Deciding a goal before making an investment is crucial because your investment decision has to be based on your goal. Goal based investing will be fruitful in achieving your needs and wants.
- Understand the time horizon: Once you know the goal, you will understand the time you have to achieve that goal. Your goal could be a Short term goal, Medium term Goal or Long term goal. Short term goal is upto 3 years. Any goal between 3-5 years is considered to be a Medium term goal and all the goals beyond 5 years are a long term goal. For instance, if you would like to invest for a retirement goal that is 30 years away, it is considered a Long term goal. If you need to invest in buying a house which is say, 2 years away, it is considered as a short term goal.
- Analyze different types of schemes – There are broadly three categories of mutual funds namely Equity Mutual Funds, Debt Mutual Funds and Hybrid Mutual Funds. With a plethora of mutual fund schemes in each category, you need to analyse and compare them to pick the right one. Investor should not ignore factors such as the fund manager’s credentials, expense ratio, portfolio components, and assets under management.
- Don’t put all your eggs in one basket- Your funds should be diversified between many sectors and not one. If one sector under performs than the loss incurred can be hedged with the good performance of another sector.
- Analyze the timing of your investment- Time is an important factor that should be considered while parking your funds in Equity market. You may end up losing everything if you ignore the timing of your investment.
- Be patient- Investment in the equity market will fetch you long term returns. If you panic looking at the loss in your portfolio after a quarter and you plan to switch your investments, it would be better if you hold for few months. If you have invested in good top quality funds than as soon as the market improves your investments would start giving you positive returns.
- Hold the best, sell the rest– Usually, investors have an approach of “ Sell the best for profits and hold the rest to improve.” But ideally, the approach should be “Sell the rest for avoiding further losses and hold the best for balancing your portfolio.” It doesn’t make sense to hold a stock for 5 years or above if it is giving negative returns.
Read More :- Choosing The Best Equity Mutual Fund In Current Volatile Market
With these few tips you can start your journey of investing. It is also advised that never expect big returns while you invest for the first time in Equity market. There would be many hurdles in between but if you plan your investments well, you would definitely win the race.Don’t get demotivated by the loss incurred in your 1st investment, you should pat your back because you got to learn many things about the market that would help you to multiply your investments in the long term.
A financial planning platform where you can plan all your goals, cash flows, expenses management, etc., which provides you advisory on the go. Unbiased and with uttermost data security, create your Financial Planning without any cost on: http://bit.ly/Robo-Fintoo
To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP‘
Disclaimer: The views shared in blogs are based on personal opinion and does not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Making an investment using the app is the sole decision of the investor and the company or any of its communication cannot be held responsible for it.