How can I make more money? Is it better to pick short-term or long-term investing plans? These are the most apparent questions that may arise, and you should be aware of the possibilities accessible in the marketplace.
What are Investment Plans?
Investment plans are an excellent way to build wealth for the future while meeting both short-term and long-term objectives. Many investment programs available in India may help you optimise your money if you invest consistently and regularly.
However, in today’s world, risk tolerance is one of the essential elements to consider when making financial decisions. So, let’s look at the many investing options accessible depending on risk tolerance.
Different types of Investment Plans in India
Most investing plans have some element of risk, which influences the returns. There are three sorts of investing programs.
- Low-risk investments
- High-risk investments
- Medium-risk investments
What are low-risk investment plans in India?
As the name implies, low-risk investment plans have a low or near-zero risk component. These programs are not affected by stock market fluctuations and guarantee consistent growth for your assets. These typically provide guaranteed returns; however, you may need to lock in your money for a longer period of time to make significant returns.
What are medium-risk investment plans in India?
Investment plans with a moderate or medium risk level function as balanced or diversified investments. These investing alternatives provide prospective gain and the ability to accept some market volatility.
Medium-risk investment strategies help diversify your investment portfolio by using a combination of debt and equity instruments to create consistent returns while avoiding major hazards.
What are high-risk investment plans in India?
These programs provide more significant profits, but the risk is also higher. It is appropriate for market-savvy investors with a thorough grasp of the market, securities, and a high-risk tolerance.
Given the large choice of products based on varying investment criteria, investment plans have become one of the most popular investment options for investors today. Before investing in an investment plan, here are 10 common errors investors make and why they should avoid them.
1. Treat investment plans like equity shares
Many new investors are so enamoured with the present short-term solid returns that they also apply their concept of stock investing to their investment plans. They have forgotten or are unaware that an investment strategy is a portfolio of equities assembled via an extensive study by skilled fund managers.
A stock may be overpriced or underpriced, but the same cannot be said of an investing strategy. This is due to the fund manager’s responsibility to choose adequately priced equities in accordance with the portfolio’s purpose.
Therefore, buying and selling investment plans for trading reasons is a costly financial blunder that investors should avoid. An investment plan will never provide returns comparable to stocks, nor will the potential losses be as severe.
2. The lower the net asset value (NAV) of a scheme, the better
Every investor understands that the slogan for achieving strong returns is “buy cheap, sell high.” This is a principle that they attempt to apply to all financial products.
Many people participate in new fund offerings (NFOs) to invest for as little as INR 10. However, they fail to recognise that the price at which an NFO purchases its underlying securities is the same as for any other market participant.
The NAV at which you may purchase investment plan units is unimportant; what matters is the price at which the fund manager purchases the underlying securities.
Let us attempt to grasp this using an example of two funds and how their NAVs perform. Scheme A (Mid-Cap Fund) was launched on January 25, 2017, at a base price of INR 10 per unit, while the NAV of Scheme B (Midcap Fund) was INR 31.59 on the same day. The NAV and scheme returns would change if someone invested in Scheme A against someone who invested in Scheme B.
When Scheme B was introduced, its NAV was more than three times that of Scheme A. Furthermore, Scheme B outperformed the other scheme in terms of returns. However, this does not exclude you from investing in the NFO. Some NFOs have exceeded their existing counterparts in terms of returns.
The lesson is that you should never invest in a plan just because the NAV is cheap. The greater the NAV, the older the fund grows.
3. Investing without consulting a financial advisor
Many people believe that hiring a financial adviser is an unnecessary expense. They believe that investing is a one-time event for which they do not need the services of a financial counsellor. They seek advice from friends, coworkers, and family, and others just invest based on social media ideas.
Some even do it themselves by researching the previous performance of funds, which we have already described as a risky endeavour. Investment is a lifelong process that evolves with each stage of life.
A financial adviser will not only advise investors on the best asset allocation for their requirements but will also assist them in achieving the best risk-adjusted return. So, unless you have complete expertise, you should always seek the advice of an expert.
What is an Investment Calculator?
The majority of us prefer to augment our income via investing. However, given all of the factors, it may be challenging to comprehend what type of returns you can anticipate from a specific investing instrument. This is when an Investment Calculator comes in handy.
These investment calculators will need you to enter information such as your starting investment amount, your rate of return, and the number of years you want to invest for. You may also provide information about further monthly or yearly donations to the investment.
After that, the investment calculator will tell you how much you may anticipate earning after your investment period. Typically, the investment calculator will tell you how much interest you have earned.
Wrapping It Up
You must be well-informed on the items you are investing your money in. You will make blunders throughout your financial path if you do not have enough understanding of your assets. Knowing about typical investing mistakes, on the other hand, may aid you in your financial path.