Why Is Investment Management Important?
Investment management is a very important aspect of our daily lives and incomes. Around 30% of the annual income should be saved or invested. Saving money is a good habit but why would a person save money when they can employ their money and make it grow over years for both short term and long term as per the requirements. Investment in today’s world should become a habit on regular basis. Management of our finances is a basic knowledge which everyone should learn for our own personal finances. Distribution of income should be on the basis of priorities and investment should be distributed in the basis of risks, amount of money involved, interest rates, etc.
Allocating Your Funds
Now here comes the main part where we need to allocate our funds in the best way where the cost or the expenditure comes to the lowest or minimum. We should be able to identify and priorities expenses ad should decide a timeframe for each expense.
We need to cut our expenditure. It does not mean we need to restrict ourselves to buy things that we want. It means we need to be well aware of our surroundings about the market prices of the items or services that we purchase.
We should find the best alternative with minimum cost by being aware about the market. We should make a limit on our expenditure. Financial management tells us to prioritize investments and savings over unnecessary expenditure. We should save money for the expensive things we need to buy.
Around 30% of our annual income should be invested or saved on an average, rest can be adjusted on the basis of your income. Allocation of funds are to be done on the basis of priorities and time. necessary and unavoidable expenses should be taken care of first, then savings and then other expenses.
How To Grow And Invest Your Money?
Financial management is not only about saving. It is also about growing your money. Why would one just save money when they can employ their money to different sources and earn a ROI that is Return on investment.
Funds can be employed to different sources of investment with respect to different aspects like risks, ROI, timeframe, amount of money involved etc. For investing your money, it is not necessary to have a good financial or investment knowledge.
We can always outsource our funds to different agencies of firms who invest our money on our behalf. We just need to have some basic knowledge about the same so that we can select the best investment alternative and the source from where we are investing. Initial two categories are on the basis of time frame that is;
- Long term investments
- Short term investments
Some basic sources of investment with different criterions are as follows:
Long term investments:
Long term investments are those which are to be hold for more than one year and it can go up to 5 years, 10 years or more also. The time duration, interest rates, and risk depends upon the requirement and type of investment.
Fixed Deposit
Fixed deposits or FDs are a type of long terms and low risk investment options offered by banks. It offers you interest rate based on the market rate. Every bank has more or less same FD interest rates. For example in the current scenario one can get up to 5-7% interest rate per annum on the basis of the market conditions.
We can offer the amount of fixed deposit to the bank either in a lumpsum or like an EMI or in installments which can be monthly or annually. These are a very secure type of investments with low risk because the interest rate is slightly lower than other alternatives but it is highly secure and the ROI is fixed in the basis of the time frame. We need to maintain the money until the FD gets matured which is within the fixed time duration which is informed to you by the bank and it varies from different types of FDs.
suitable for: People who cannot afford to take risk or the people who are making investments for retirement or other long term purposes or investors with limited income who are conservative in taking risks.
Some banks and institutions that provide good interest on FDs are:
Bonds:
are the securities offered by a company or the government who needs capital of funds for various projects or growing their businesses. It id also a low risk investment alternative if the bonds are issued by companies with good credit worthiness or the government it self.
It offers regular interest payments to its investors over the life period of the bond which can be annually. The interest rates vary from company to company or RBI in case of government bonds. You can find the information for government bonds on Government Bonds
Mutual Funds:
Mutual funds is a service offered by many institutions where the money of many investors are pooled and invested in different types of securities like stocks, bonds, debentures, short term debts to companies, etc.
Here the funds are diversified into various sources. But here the money is to invested in a lumpsum. Mutual funds are purely based on the market conditions and the interest rate can vary. It is a type of mid risk investment mostly considered safe because the funds are diversified.
The ROI can vary from 7-18% annually on an average according to the market conditions. Some good mutual funds agencies are : Aditya Birla
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SIP (Systematic Investment Plan):
It is type of mutual funds with diversified allocation in different sources but here the investor can pay in installments monthly also. Lumpsum amount is not required and investors can expect returns up tp 18% on an average. It is kind of mid risk but mostly secure investment option. It is also based on market conditions.
suitable for: people who have a regular income and invest a part of their incomes on monthly basis or regularly.
Some good SIP agencies are: HDFC SIP
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Real Estate:
real estate and buying and selling of properties can be one alternative which is mostly low risk depending on many factors like nature of property and location. Mostly large funds are invested in real estate sector.
suitable for people with good wealth and lumpsum amount of money.
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Stocks And Equity:
Stocks or equity means a part of ownership of a fir or an organization. One can purchase equity shares and keep them from long term to gain returns. Stocks are purchased on the basis of technical and fundamental analysis.
SEBI registered brokers provide information and advice about which stock to buy and sell at what time in exchange of some amount of commission or subscription. These brokers or broker firms have knowledge and experience regarding the same. We need to make a Demat account first to start trading.
ROI can be expected up to 18% on an average and in Multibagger stock (stocks of company that grows very much on a rapid rate) selection it can also go up to 100% or more. Risk depends upon the type of securities. If you invest in large or mid capital companies, then the risk might be a little lower as compared to investment in low capital companies. Usually low capital companies have high gains with very high risk.
Suitable for people who have tie to manage their portfolios and sufficient amount of basic knowledge required for trading. Some good SEBI registered Brokers and investment platforms are: Groww , HDFC Securities , 5paisa etc.
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Long term policies:
Long term policies are offered by insurance companies, banks, financial institutions etc. These policies offer retirement plans, education plans , health plans etc. on the based of your requirements.
Sometimes it is interest based, sometimes it is lumpsum amount paid after maturity with gains.
Aditya Birla Policies , Birla Retirement Plan , HDFC Policies etc.
Short Term Investment:
Short term investments are those which are kept for one day to one year. Risk and ROI is based on the type of investments.
Savings Account:
Saving account is a personal bank account which is more liberal then fixed deposit but the interest rate is lower than fixed deposit and a short amount of money can be withdrawn. Interest rate is generally up to 3.5%
Stock Market:
Stock market investments can be done on daily basis till one year. Trading done within one day during trading hours that is 9:30 am to 3:30pm everyday except Saturday and Sunday. It is mostly high risk but it can be regulated through risk management if one has proper knowledge of stock markets and analyzing trends which includes technical and fundamental analysis. SEBI registered brokers can also advice about buying and selling of securities.
Government Or Short Term Bonds:
Government bonds which mature within one year or less. Interest rate of government bonds is generally low but they are mostly secure because they are offered by RBI.
Gold Or Silver:
Investment in gold and silver for short term can generate profits and capital gains. prices of these metals keep flacuating year to year and can be a source of earning profit. It is mostly secure. Some of the good places to buy gold from are: Tanishq Jewellers, Kalyan Jewellers etc.
Short Term Policies:
Policies which are to be mature within one year are short term policies. amount of money invested is generally less in amount for short time periods. Policies are offered by banks, financial institutions, government policies offered through RBI etc.
What Is The Real Meaning Of Financial Management In Your Daily lives?
Financial management is a very broad term in general and in accounting and professional terms. But is it only limited to firms and enterprises? Financial management means management and allocation of your funds and money in such a way that you can save, invest, spend, grow, etc. without facing shortage of funds.
Financial management is a very important aspects of our lives at our levels on daily basis. Around 3.5 billion of adults globally, do not know how to manage their Personal finance. Which means billions of people do not know the importance of financial management. We should understand the importance of financial management at early stages of our lives.
We need to first understand that financial planning is very important to manage our money. We need to build a futuristic approach and save for the future, but with spending money on ourselves as well.
Financial management does not mean restricting yourself, it means managing yourself and your funds for a better future and present. It means planning, organization, directing or allocating and controlling of your daily use money.
Financial Planning And Budgeting
Financial planning means creating a blueprint or a plan giving the description of the use of your finances. It is like a roadmap of your monthly weakly or quarterly finances.
it is also called budgeting. Budgeting in technical terms means the plan of expected expenditure and expected revenue. In our daily life we can say it is a small plan of our expected income, our expected and fixed expenditures and expected savings for a particular amount of time for the future.
It is a futuristic approach. For financial management, we need to make are own personalized financial blueprint. We need to follow some steps given bellow for the same:
- Identify your expenses
- Make an estimate of your income for a particular time period. It can be monthly, weakly or quarterly.
- Make a list of your fixed expenditures such as rent, electricity bills, transportation costs, investments(if any) , interest/EMIs(if any), Grocery etc.
- Analyze these expenses and make an estimate of how much money is spent on every aspect.
- Make a total of these expenses and compare it with your income
- At an average people should should save 30% of our annual incomes.
- By analyzing and adjusting all the aspects of your income, you will be able to make a personalized budget
Follow Up On Your Finances And Investments
Investment management is a skill in itself and we should know how to manage our personal investments. After investing the money we should keep a regular track on our investments and follow up. If we have outsourced our investments then we should take regular feedbacks from the organization. There should proper time to time regulation on investments as well as expenses.
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