The Indian stock markets are booming and touching historical highs. You may want to increase your exposure to equities to make larger profits during this trend. However, before you make any quick and inaccurate decisions, you must consider the long-term repercussions of your choice.
Here are five things you must consider before you make your investment decisions.
- Determine current financial situation
If you have a financial plan, relook at it to know your current situation. If you have never made one, now may be the right time to sit down and create a financial plan. The first step is to list down your financial goals. This will help you determine the amount you need to save and invest to meet your objectives. The next step is to know your risk appetite. Every investment has certain inherent risks and you must know how much risk you arewilling to assume to choose the appropriate financial products.
- Evaluate different investment options
Fixed-income securities such as fixed deposits and savings bank account provide guaranteed returns. However, these are often low and may not be enough to combat the rate of inflation. On the other hand, equities are high-risk high-return investments. You may invest in equities either through a stockbrokeror through an online trading account. You may also consider investing in mutual funds, which deliver good returns while reducing the risks of direct equity investments. In addition, other investment options include pension plans, insurance policies, and post office schemes.
You must include different asset classes to diversify your portfolio and reduce the risk of investing. Additionally, not every investment option is suitable to meet your financial goals. For example, if you want to build a retirement corpus, you will need to include some equity investments to meet your requirement. Similarly, if you want to achieve a short-term goal, you must invest in debt instruments to reduce the risks. An important thing to remember is that you will require a demat account to invest in most financial products.
- Maintain an emergency fund
How will you meet your expenses in case you lose your job suddenly? Do you have sufficient funds to meet a medical emergency that may not be covered by your health plan? To ensure you do not face any financial difficulties in such situations, most experts recommend maintaining an emergency fund. This fund must be distinct from all your other investments made to meet your various financial objectives.
- Repay high-cost debt
Credit cards and personal loans are beneficial means to meet your fund requirements. However, you must use these responsibly to avoid falling into a debt trap. It is very important that you make regular payments on your personal loan installments to avoid penalties. Additionally, you must always pay the credit card bills in full to avoid huge finance costs. If you do not follow these prudent financial principles, you may find yourself in difficulties. In addition, paying only the minimum due or defaulting on the loan installment negatively impacts your credit score. Therefore, you must pay-off high-cost debt to ensure financial stability.
- Review investment portfolio periodically
Investing is not a one-time process. You must periodically monitor your portfolio to review its performance. This also enables you to make necessary modifications that become necessary due to the dynamic market conditions.
Investing is an excellent way to meet your financial goals. However, with a large number of available options, making the right choice may be difficult. Following the aforementioned rules will help simplify the process and enable you to make informed decisions.
