Five Essentials of Investment

Whenever we are faced with an investment decision, we need essential knowhow of what could help us in making an informed decision.

Here are the five guiding principles of Investment decisions for any individual.

1.       What is your investment objective?

The objective of any investment differs depending upon the type of individual, his age his cash inflow and his responsibilities. So every decision should be pragmatically separated from the rest and then seen in light of whether it meets our objective.This is one essential for investment.

2.       Are you protecting what you have?

This relates to the risk taking capacity of the individual and whether he is taking the decision on a well thought of plan for protecting his capital. There are avenues wherein the person can be more of a gambler rather than a speculator and risk almost all his amount and lose on it. On the other hand he could be looking at protecting all that he has and is not worried about a lesser rate of return. In such a case he is fine with going in for Public Provident funds.

3.       What is the alternate plan if this fails?

“What if” alternatives are a pre requisite for any investment decision? It could so happen that a particular investment option was open for a limited period and the person has now to look at other alternatives. There are term deposits from many banks which offer decent rates of return but at the same time their duration is limited.

4.       Are you aware of the financial instrument you are using?

A complete knowledge of the financial instrument being used is a must. It can be options futures or securities or Bonds. Proper in depth knowledge of some of the financial instruments is necessary for any individual who wants to dabble in these modern age avenues.

5.       What are the tax implications?

Tax is an essential component one should look at while calculating the margins. This in fact decides the overall profit that one would be making on any investment. It varies with the investment vehicle and is more for those which have a potential of higher returns in short term.

With this we have come to the conclusion of this particular topic and hope you could benefit out of it. Happy investing!!