In India, most of people confuse insurance with investment. They invest all their money in LIC and expected to become rich. Insurance never make you rich. In this post how you are financially smart. Most of the times, people may not require life insurance plans. Health insurance and term insurance would help them in case of emergency. If you have steady income from properties/pension or you are not an earning member of your family or you are financially wealth, life insurance does not make much sense to your financial planning.
You are not an earning member or you are financially wealth, insurance will not make any impact on your financial situation.
- Do not invest in Money-back or Endowment insurance plans. The expected investment return on these type of plans is 5 to 6% in most of the cases.
- Do not invest in ULIPs (Unit Linked Insurance Plans) if your investment duration is less than 10 years.
- Do not invest in Child plans. (Term insurance + mutual funds combination can be a better option).
- Do not buy Life insurance just for the purpose of tax benefits.
- Do not buy Pension plans or Annuity Plans ( if you are a retiree). The post tax returns from annuities may be around 5 to 6%.
Have sufficient Health Insurance coverage
In case you want to invest for your child’s education or retirement, mutual fund SIP would do far better than life insurance. Start invest with monthly 5000 rupees in nifty index fund and 5000 rupees nifty next index fund for 20 years. It would give 1.5 crores. It would help for your kid’s education or your retirement.
Loans:
- Do not use credit card if you are not able to clear overdue amount. The interest charged for credit card is 36%.
- Use maximum 30% of your monthly income by credit card.
- Do not take personal loans. The interest charged on these loans is around 15%.
- Do not roll over your credit on credit cards. Do not utilize your total credit limit consistently.
- Do not take home loans for 80% of property value. Maximum 60% by loan. Analyze your EMI paying capacity, job security and other financial goals.
- Do not withdraw amounts from your EPF a/c or PPF a/c to fund down payments.
- Retirement planning is more important than buying a property through a loan.
Stocks & Mutual Funds:
- Do not invest in stock markets or Equity mutual funds if your time horizon for financial goals is short term.
- Do not invest in Mid-cap or Sector oriented Equity Mutual Funds if you are risk averse.
- Do not invest in stocks based on rumors or tips.
- Do not invest in Penny stocks without understanding the business. You would loss the money in penny stocks.
Fixed Deposits:
Fixed deposit would help in case of emergency. But FD returns became very less compare to inflation. To get better returns out of money, buy gold instead of FD. Gold can be used as emergency fund by pledging it. Gold can be used as emergency fund as well as investment.
Fixed deposits has inflation risk.
- If you are young, earning and can afford to take risk then do not invest heavily in Bank Fixed Deposits (or) Post Office Saving Schemes
- Do not park surplus income in FDs. Invest in mutual funds or nifty stocks.
- Do not invest in Corporate Fixed Deposits which have a low credit rating.
No to Investing heavily in Fixed Income Securities
Real Estate:
Real estate can be best investment in long term. To become rich, diversification is important in your investment portfolio. You should target for 30% of investment in real estate as land or plot. It would have chance to grow in case real estate market is booming in your area.
- Do not invest in property for short term gains. It can be extremely risky.
- Do not invest in real estate based on speculation.
- Do not invest in properties which do not have proper approvals from authorities.
- Do not invest all your money in real estate. Maximum 30% of your investment as land or plot.
Buying a Property with 90% loan without investment and savings.
investment in gold :
Gold can be used as Contingency or an Emergency Fund
- Try to buy 500 grams of gold. It would help in case emergency.
- Pledging 500 grams gold would give you easily 15 to 18 lakhs. It would give you option to invest in real estate or help in emergency.
- Do not buy gold coins at banks. They are charged at a premium rate.
The ground rule of rich is
“How much return I will get from this investment”,
“Can I get 9% returns from the investment?”.
If you are not getting more than 12% return in long term, it is not an investment. It is money holding instrument. FD, RD, LIC all are money holding instrument which helps you save the money.
Gold, mutual funds, PPF and stocks would give more than 10% in long term and it can considered as investment. List down your financial goals and align your investment with that. Begin with mutual funds and gold. Happy Investing.