Starting your investment planning journey? From wealth creation to tax saving — Here are key factors to consider

Smart financial planning will need to take into account an assessment of your current finances, risk tolerance, and future goals when calculating your savings, investments and retirement fund.

When focused on investment planning in particular, your decisions would likely be guided by the desire to meet your financial targets and long-term stability. Also, given the increasing cost-of-living, medical and lifestyle inflation only relying on savings can leave your corpus unable to match the rate of depreciation of money.

Some major options for most investors in India include the equity markets (stocks, mutual funds, etc.), gold, cash, debt and alternative investment options. The optimal financial plan would include diversification across various asset classes to provide a balanced portfolio, adequate liquidity and maximum tax savings.

Investment planning process: What are the first steps?

• The process usually begins with the evaluation of current income, expenses, savings, and liabilities.
• Here, the evaluation must identify your short-, medium- and long-term goals against the likely risks and your personal investment capacity.
• The selection of investment choices must align with the assessed goals, risks and capability.

• It is not a once and done process and will need to evolve with periodic adjustments and evaluation based on future goals, economic status, lifestyle preference or financial requirements.

Investment planning: Here are key factors to consider

Inflation: Average inflation rate is 6% while investments on average yield 4% annual returns — with the comparison being negative, it is important to seek opportunities for long-term capital appreciation and inflation adjustment. Instruments that can successfully beat inflation include equities, gold, mutual funds and real estate.

Financial goals: You may have to consult with a financial expert or conduct a detailed and thorough analysis of your financial goals, over the short-, medium- and long-term horizon to properly plan your financial objectives.

• Short-term goals (less than three years) can include vacation planning, renovating your home, buying a car or creating an emergency fund. You can invest in debt mutual funds, fixed deposits, liquid funds or recurring deposits to meet these goals.

• Medium-term goals (three to seven years) include planning for school fees, business expansion and property purchase. Appropriate investment options include hybrid mutual funds, fixed income tools, bonds and balanced funds.
• Long-term goals (more than seven years) include planning for higher education, retirement and wealth creation. You can invest in ULIPs, public provident fund, national pension scheme, equity mutual funds and direct equity to meet these goals.

Financial security and tax saving: Investment planning should also ensure that your future is financially secured against medical and health issues, and unexpected or emergency situations.

Further, a good plan will factor in your taxes and try for the best tax-efficient options as per your goals and needs.

Wealth Creation: A good financial strategy can ensure you not just have savings for the future but build wealth over time. This includes consideration of interest or income generating investment options such as bonds, dividend stocks, rental real estate, fixed income instruments and small savings schemes i.e. Senior Citizens' Savings Scheme (SCSS).

Retirement planning: The best plan of action when saving and investing for retirement is to start as early as possible to take advantage of the power of compounding. A strategic approach allows you to generate wealth and an income stream post-retirement to secure financial independence during old age.

You should future-proof your investments by taking into account healthcare inflation, longevity and lifestyle choices. The popular options here include mutual fund SWPs, post and bank fixed deposits, ULIPs, NPS and PPF schemes.

(With inputs from agencies)

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.