Hierarchy of Investment Needs | Where to Invest First | Financial Planning Tips

UR Advisor- Altaf Sayyad

Here is the Ideal way to start your Investment Journey:

• First start with creating Emergency Fund

Emergency fund is the amount of money that will be helpful or can be used during emergency situation like sudden job loss, medical expenses or any urgent money requirement. Individuals should create at least (Minimum) 3 months of salary or 6 times of Monthly expenses as Emergency fund.

You can keep this kind of money in Liquid mutual funds or Savings account for Quick access.

• Second the most important, plan for Life and Medical Insurance:

Everyone knows the important of Life and Medical Insurance. Buying insurance should be you utmost priority before starting any investment.

For Life insurance- Buy Basic Term Plan. It provides high cover at lowest premium. The early you buy less premium you pay. You can refer my article on Best Online Term Plans.

For Medical Insurance- Buy Basic Mediclaim Plan+any riders. Even if you have employer insurance, you should consider buying separate policy.

Now you can go ahead and plan for Short, Medium or Long Term goals like going on a vacation, buying a car, house, Marriage, Child education, Retirement etc

• Short term goals

Short term goals are those goals that can be achieved in a period of 1 to 3 yrs.

Example: Making down payment for Home purchase, Going on a vacation, Getting married, Buying a car, paying off personal or other loan.

For 0 to 3 Months Period = You can use Liquid Funds

For 3 Months to 1 Year Period = Short Term Debt funds

For 1 Year to 3 Period = Short Term Bond Funds

Apart from above mutual fund schemes, you can also opt for Bank recurring deposits and Fixed deposits.

• Medium Term Goals

Medium Term goals usually take 3 to 5 yrs period.

Example: Modification to Home, Starting a new business, Foreign Holiday.

For medium term goal up to 3 yrs or more, you can use medium/long term debt funds. For 3 to 5 yrs period, one can also use Balanced Mutual funds (Equity+Debt)

One can also opt for Direct stocks investment in Blue chip companies.

• Long Term Goals

Long Term Goals are one that takes more than 5 yrs to accumulate money. 

Example: Retirement, Child education, Child Marriage, Parents old age expenses

Equity Mutual funds have given annualized returns of 15% to 22% over long term. 

Large cap funds- 5 to 7 yrs period. 

Multi-cap funds- 7 to 10yrs period.

Mid-cap/Small-cap funds- 10 yrs or more.

Apart from above mutual funds, one can also opt for NPS/PPF for Retirement goal. Direct stock investment for Long term goal.

Below snapshot shows how can you use mutual funds schemes for different goals.

UR Advisor- Altaf Sayyad

Additional Tip:

• Write down all your goals. Your goals should be SMART (Specific, Measurable, Achievable, Realistic and Time bound)
• Link each goal to your specific investment. 
• Don't mix investment and Insurance in one plan.