How to do Investment Planning ?

Introduction: How to do Investment Planning ?

While reading the title of this post, you may ask , where is money to invest ? or have lots of money but need guidance on how to manage. I think these are the right questions. Before we start learning How to do investment planning, it is better to understand How to do Money Management? and How to Set Financial Goals ?  Do read these posts for detailed understanding.

In earlier posts, we have understood how to create a budget, record your monthly income and expenses to understand your monthly savings and further we have understood how to set financial goals . Now it’s time to understand how to do Investment Planning. You should start investment Planning once you have investible money and how to know whether you have investible money. Please see below points:

Whether I have investible money?

1. Do you have term Insurance ?
2. Do you have health Insurance ?
3. Do you have an emergency fund to cover your monthly expenses for six months ?
4. Are you debt free ?
5. Whether you have surplus amount i.e. money is available after deducting monthly expenses from your monthly income ?

If the answer to these questions are yes, you are ready for investment .

Why Should I Invest ?

It’s logical ! Why do you have to invest ? Let money be in savings or fixed deposits. You can use it when you need but it may not be as simple as it looks . Two major reasons for Investment is Inflation and to meet your financial goal like buying a house, car, starting business, retirement etc. You have to invest in various asset classes based on your risk profile so that money will be available at a time when you need it .

What are steps in Investment Planning ?

1. List out your Financial Goals
2. Understand your Risk profile like you are “Moderate Investor” , “High Risk Investor ” etc.
3. Identify various asset class to invest based on your risk profile like Equity, Fixed Income (Fixed Deposit, Bond, Debt Mutual Fund etc.), Gold, Real Estate .
4. Identify your monthly Investment amount based on the above points. Since you know your fund requirement like e.g. you need Rs. 9 crore when you retire at 60 years .
5. Create Investment Portfolio of various asset class based on your monthly investment.

Investment Portfolio

Your Investment Portfolio will look like :

Now you see the above table, suppose you are 40 years of age, you can keep a simple thumb rule based on your risk profile, to keep 100 – your age in Equity i.e. 60% in equity and balance in various other asset class. You may need help from Financial advisor to understand your risk profile and to identify your monthly investment amount for various asset class. Like how much you should invest in an equity or equity mutual fund from age 40 to get Rs. 9 crore at the age of 60 years for your retirement corpus . It is advisable to have systematic investment plan for disciplined investment and to avoid any practice to time the market.

How to manage an Investment Portfolio ?

Once you create an Investment portfolio, you have to start investing according to identified investment products like shares of Bluechip companies or good rated mutual funds or fixed income products like post office schemes. There are 5000+ listed companies and 2000+ Mutual fund schemes, one should take professional advice for identifying the correct investment product. Investment portfolio should be reviewed every year or as per agreed time to have proper asset allocation i.e. fixed asset allocation or strategic asset allocation .

Tax aspects for your Investment:

You can get Tax P&L from your broker for investment in equity and Mutual funds. For investment in Fixed deposit, you can get interest certificate from your bank .You have to consider Income tax while doing any change in portfolio like Long Term Capital Gain (LTCG)or Short Term Capital gain for equity. LTCG in case of equity is exempted till Rs.1 Lakhs i.e. gain on sale of equity shares after 12 months from date of purchase.

Summary – How to do Investment Planning :

Hope you get clarity regarding how to do Investment Planning? What are various Asset class and how to maintain an Investment Portfolio . There are various assets where you can get good investment returns and get tax benefits too like NPS. Do read our post, National Pension Scheme – NPS can give benefit up to 42% in first year You can check NPS website too.Please give your valuable feedback in the comment section.

Happy Investing !