Having a solid investment plan comes in handy for investors and allows them to achieve their goals with greater ease. Typically, seasoned investors tend to develop the best investment plan based on their financial goals, which they categorize as long-term, short term and mid-term goals.
Dividing the goals into time frames, helps them to pick suitable investment options as per their risk-taking capacity.
That said, this article offers a brief insight into the options for the best investment plan for each category of financial goals and helps intending investors to navigate the same.
Investment Options For Short-Term Financial Goals
Individuals who often have a surplus amount of money at hand which they could need in a year or so, tend to benefit by parking it in short-term investment options. Typically, to meet short-term goals individuals seek investment options that minimize risk to their capital and at the same time make funds easily accessible when required, making them a key ingredient of any best investment plans.
Popular Short-Term Investment Options
- Debt Funds
Debt funds like Ultra Short Duration Funds, Liquid Funds, and Money Market Funds are designed to fit short-term investment goals. They come with a low risk-reward quotient and offer better accessibility to one’s principal investment than other traditional savings products like a fixed deposit.
- Fixed Deposits
Fixed deposits are counted among the most popular and safe investment options in India as they tend to offer guaranteed returns. This investment option allows individuals to deposit money in an FD account which assures fixed returns on the principal deposit at the end of the FD tenure.
While fixed deposits generate assured returns, the amount barely beats inflation post-taxation. Additionally, fixed deposit schemes also levy a penalty on premature withdrawal and often come with a lock-in period. This limits the liquidity of fixed deposits significantly. One can use a popular investment calculator India to gain a better idea of the returns.
Best Investment Plans For Medium Term Financial Goals
Financial goals that can be achieved in 3-5 years are categorized as mid-term goals. For instance, saving up for a wedding, a downpayment on a new house, house renovation, etc. are considered to be medium-term investment plans. Such plans tend to offer a decent margin that can beat inflation but at the same time do not expose the portfolio to volatility.
Popular Medium-term Investment Options
- Post Office Time Deposit
National Savings Time Deposit allows individuals to deposit their money for a fixed time period. The advantage of such a plan is that they are known to offer better returns than most banks. Additionally, being a government-backed scheme, the risks are also very limited.
- National Savings Certificates
National Savings Certificate is a post office savings option that is also backed by the government. It functions like a 5-year FD and comes with a lock-in period of the same duration, and offers an annual interest at a prefixed rate. However, the entire sum is paid at maturity.
- Debt Funds
Notably, there are 16 categories of debt funds with varying levels of risk and return. The most popular debt mutual funds include corporate bond funds, short-duration funds, and banking and PSU funds. This is why individuals must do their research to pick the best kind of debt fund suited for their mid-term goals.
- Hybrid Funds
These mutual funds put money into more than one asset class. For instance, the most popular hybrid funds invest money into debt and equities, whereas, others put money into real estate and gold. These funds offer the stability of debt instruments and the growth potential of equities in a single investment option.
Investment Options For Long-Term Financial Goals
Long-term goals are defined as the ones that individuals would achieve in 7-10 years. Individuals often tend to pick volatile but high-yielding investment options for the long term. This is because many investors think that a long investment horizon helps to even out the risks involved with risky investment options.
Popular Long-term Investment Options
- Direct Equity
This option is considered to be one of the best to generate wealth to meet long-term financial goals. These options invest in company stocks and hence reap benefits when the same make profits and offer dividends.
- Equity Mutual Funds
These funds carry relatively fewer risks than direct equities and help diversify one’s investment portfolio. However, equity Mutual funds invest money most into stocks, and the same is maintained by professional fund managers.
- Public Provident Fund or PPF
PPF is a government-backed savings scheme that offers assured returns, making it a safe investment option. These schemes come with little volatility and generate lower returns than other market-linked products like stocks, mutual funds, or National Pension Scheme.
- National Pension Scheme
NPS is a long-term investment product focused on retirement. It is essentially a combination of assets like equities, corporate bonds, and government bonds. Individuals have the freedom to decide how much money they want to put into different asset classes based on their risk appetite.
- Unit-Linked Insurance Plan
ULIPs tend to combine the perks of life insurance with investment. This is because a part of the investment premium is parked into equities and bonds to build a corpus over the long term. Alternatively, the other part of the investment goes toward insurance. Notably, ULIPs come with a 5-year lock-in period.
- Gold
Gold is known to beat the impact of inflation and offers good returns. While physical gold has been a traditional means of investing in gold, it comes with limitations like storage charges, making charges, etc. However, individuals have the option to purchase ETFs and mutual funds to avoid them.
- Real Estate
Investing in properties has offered substantial returns in the past. However, the option also has its set of risks and constraints. For instance, one of the key risks with real estate investment is that it is challenging to liquidate in a short time. Often rushing to sell the property forces the owner to sell it at a discounted price.
Regardless of financial goals, individuals must factor in their risk-taking capability when selecting an investment option. This will help them to build the best investment plan, cushion their portfolio against volatility and ensure that they generate enough wealth to meet their goals without being exposed to unwarranted market risks.