You don’t just park your money in an instrument when you invest. The importance of selecting the right asset cannot be overstated. When investing in an asset, it is also important to take into account a variety of factors. The following are some important things to keep in mind when investing
Objectives of the investment
There is a unique investment objective for every asset. Investment objectives should therefore be aligned with those of the assets in which one intends to invest. Investors do not all require the same type of investment. An investor’s best investment option may not necessarily be another’s. In order to achieve the financial goal, it is crucial to align the financial plan and investment objective carefully. Investments in equities are suitable for long-term goals such as funding a child’s education, planning a wedding and retiring. For short-term goals, one can invest in fixed-income instruments like FDs and money market instruments.
The investment horizon
Investing options are suited to different investment horizons. A five-year lock-in period is common for fixed deposits. In the same way, PPF accounts have a 15-year lock-in period. Mutual funds and equity investments, on the other hand, don’t have a lock-in period, but it’s recommended to stay invested for three to five years. A suitable investment option with the right investment horizon should be selected based on the investor’s financial goals.
An investment scheme is volatile when it comes to risk. An asset’s price changes in response to changes in market dynamics, in other words. There is a high level of volatility in equity investments, such as shares. Government-backed schemes such as fixed deposits offer guaranteed returns. Risk is not understood by all investors. Investing in assets with volatility that one can handle is therefore important.
Investments offer different returns. High returns are rare in investments; however, they come with significant risks. There are some investments that offer guaranteed returns, however. Investors expect to generate significant returns on their investments. Understanding the asset’s historical performance and returns is therefore crucial. There is no guarantee that future returns will be the same as historic returns. However, analyzing the asset’s performance throughout different market cycles is always a good idea. We will get definitely a high return on investment when you invest in real estate at Top Builders in Nashik with the best deal in Nashik city.
The cost and expense of the project
There are costs or expenses associated with every investment. In the case of shares, for example, there is a transaction cost. Fund management costs, exit loads, etc., are charged by mutual funds. There are also few investments that charge a penalty if you withdraw your money prematurely. Consequently, when shortlisting an investment, it is important to also consider the expenses and costs involved. Low-cost and low-expense schemes are always the best investments. Read about mutual fund expense ratios
Availability of liquidity
The importance of investing in assets with good liquidity cannot be overstated. Unexpected events require liquidity to be addressed. The stock market and mutual funds, for example, offer high levels of liquidity. It is easy to convert holdings into cash by selling them. A real estate investment, on the other hand, is not highly liquid. If an investor needs money immediately, they may not be able to liquidate the asset. The importance of holding liquid assets in one’s portfolio can therefore be seen
The lock-in period
Lock-in periods are common in some investments. Investing in a lock-in period requires the investor to hold the investment for a minimum period of time. The lock-in period for PPFs is 15 years, while the one for FDs is 5 years. Premature or partial withdrawals from investments with lock-in periods are usually not permitted. A withdrawal can, however, be made with a penalty in case of an emergency. Because of this, before investing, you should be aware that the funds won’t be accessible for as long as the lock-in period lasts.
The tax system
Taxes are imposed on investment returns. Investing in mutual funds, for instance, can result in taxation based on the holding period and the type of fund. In contrast, PPF investments are tax-deductible and their returns are tax-free. The tax obligation on investment returns is therefore essential to understand. To estimate one’s tax liability, one can use an income tax calculator. There is a free online income tax calculator available on Scripbox. Taxable income can be estimated using it.