Money making tips: The strategy followed for long term investment is different from the strategy for short term investment.
Successful Investors: The strategy followed for long-term investing is different from the strategy for short-term investment. Some asset classes offer better risk-adjusted returns in the long run. Investors get more exposure during long-term investments, as long-term investment gives investors more time to recover from their mistakes and losses. Conversely, the emphasis is placed on guaranteed returns while protecting capital during short-term investments. Currently, returns are guaranteed for long-term investments. Here are some special tips to succeed as an investor in the long term.
1. Financial goals must be clear
Every long-term investment you make should have a life goal. By doing this you can get a clear estimate of the size of your financial goals and the time required to achieve them. After getting an estimate to achieve a fixed target in a fixed time, it is easy for you to estimate the churn investment required to build a corpus. After gathering all this information, you can easily decide your fund flow for each of your short term and long term financial goals based on your preferences.
2. Start investing early
The sooner you start investing, the more benefit you will get from compounding in the long term. Due to the power of compounding, you will get returns on returns over time, which will help you to build a big fund in the long term even though low investment. For example, a 26-year-old person needs a SIP of Rs 3,500 every month to raise 2 crores on retirement. Here the annual interest is assumed to be 12 percent At the same time if he starts his equity fund SIP after the age of 36, ie 10 years, then to create a retirement corpus of the same size, he will need a monthly SIP contribution of Rs 12,000 at the same interest rate.
3. Invest in Equity Fund
LTCG tax 10 per cent on equity gains of Rs 1 lakh and above in a financial year
Despite being, equity is still the best asset class for investments of 5 years and above. Volatility can be seen in the short term, but in the long term, it performs better than most fixed income return classes.
The best option for retail investors to benefit from equity is equity mutual funds. Equity funds give their investors the benefit of professional fund management, adequate diversification and investment facility at very low cost. Here you can also invest in ELSS funds offering tax benefits, which are known as tax-saving mutual funds. In this, there is a benefit of tax saving under Section 80C.
4. Choose SIP for Investment
It is not necessary that every investor has a lot of experience of investing in equity funds. In such a situation, SIP is a better option. Choosing SIP option helps to ensure regular investment. SIPs benefit from averaging and financial discipline during market correction. The ticket size of most equity funds is less than Rs 1,000 (Rs 500 in case of ELSS funds). Even investors with limited monthly surcharge can get the benefit of investing in equity asset class through equity mutual funds.
Investors also get an opportunity to top up SIP in this, where they can get more units. By doing this, they can achieve their financial goals in a short time.
5. Emergency Fund
When you continue to invest for a longer period, make sure that you create an emergency fund to meet your mandatory monthly expenses of at least 6 months. These mandatory expenses should include your daily living expenses, utility bills, insurance premiums, tuition fees of your children, EMI, rent, contribution to your important financial goals, etc. By doing this, you will be able to deal with the challenges of any financial emergency. Not doing so can affect your financial goals. For example, you may have to sell your investment if needed.
6. Periodically assess investment
You need to regularly review the performance of your fund as an investment in equity mutual funds. There may be times that star funds with excellent returns may remain backward for a long time in future. If you feel that one of your funds is not doing well, then you can remove it from the portfolio after taking information about its important reasons. Other schemes can be included in their place.
(Author: Sahitya Arora, Director, Paisabazaar.com)
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