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Importance of Investments

When To Start?

When should one start Investing?

The sooner one starts investing the better it is because of the concept of compounding. The more time we give to our investment to grow, the more is the chance to increase wealth. Also, the fact that an investor's appetite at a young age is high and he/she can take more risks. An individual’s risk appetite is high at a young age. In case an investment decision goes wrong, there is time to work towards it and cover it up. Moreover, the financial goals, and other obligations are comparatively low in an individual’s early age. 

 

One should choose to invest when –

1.They’re saving up for a particular financial goal, for which they will need money in later years, like retirement, child’s marriage, etc.

2.There is a fall in the interest rates offered by bank deposits and monthly savings plans.

3.They have thoroughly researched their risk and return profile, and have a clear timeline of their goals.

Factors that affect/determine your investment capability –

a)Family Information - number of earning members, number of dependent members, life expectancy 

b)Personal information – age, employability, nature of job, psyche

c)Financial information – capital base, regularity of income (regular or contractual job)

d)Present worth- amount of assets already created and any liabilities undertaken like any loans

e)Past investment experience (if any)

 

In short, it can be said that your risk appetite determines or affects your investment profile.  

 

Important Steps to Investing:

There are certain steps which one should always keep in mind while making an investment.

  • Obtain written documents explaining the complete details of the investment
  • Read and understand such documents thoroughly
  • Verify the legitimacy of the investment
  • Find out all the costs – direct and indirect costs to make the investment
  • Assess the benefits/returns of the investment
  • Be wary of the risk return profile of the investment
  • Know the liquidity and safety aspects of investment
  • Ascertain if the investment matches your specific financial goal
  • Compare these details with other investment opportunities available in the market
  • Deal only through an authorized intermediary
  • Seek all clarifications about the intermediary and the investment
  • Explore the other options available 

(Source: NSE)

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Units 3/16