Planning to Invest? Don’t Skip These 5 Points Before You Put Your Money to Play

Be clear with your investment goalIt is always advisable to be clear with your investment goal. Pick up a pen and jot down the aim of your investment plan. Whether you want to buy a car, save for your/others’ education, buy a gift for your loved ones or buy a house, be clear about what you want to do with your money.This helps in building out a roadmap and setting essential aspects like the timeframe of investment, amount of investment and expected returns. Minding the risk factorOnce you are clear with your investment goal, check your risk appetite. Always invest the amount that your pocket can afford to lose. People often lose out on their investments. A recent study by the market watchdog, Sebi (Securities and Exchange Board of India), revealed that 7 out of 10 intraday traders made losses in FY23.Markets are attractive because people love it when something valuable gets doubled. But something that goes up can also come down. Be mindful of the risk that you afford. This also helps you in choosing the right instrument for investment. Asset AllocationThe financial market has many instruments to offer like FDs (Fixed deposits), stocks, SIPs (Systematic Investment Plans), ETFs (Exchange-traded funds), thematic funds, Commodities and the list goes on. However, not every financial instrument is perfect for everyone.Once you know your risk appetite, select the asset class that matches your risk-reward ratio. Do your research or take professional advice if you are diving into the financial space for the first time.Make sure you know your instrument. From the amount of tax the instrument might attract to the tenure of your investment. For instance, taxes levied on commodity investments like gold and silver vary significantly from that of SIPs. Diversify itSelecting and sticking to an allocation plan is important but as the common saying goes- “do not put all your eggs in the same basket,” you have to diversify your portfolio. A single-instrument class might not be a profitable bet always.Plus, having multiple instruments in your portfolio gives you a larger spread area for risk. Even if you are sticking to just the stock market, make sure you have diversified shares in your portfolio, like mid-cap, small-cap and large-cap.While one can give you attractive returns the other might provide stability to your portfolio’s value in times of market downturn or when things go south. Due DiligenceLast but not least, always do your own due diligence. Study the instrument you are investing in.More often than not, people just look at the past returns of the product they are planning to invest in. However, this might just be a recipe for disaster at times.Factors impacting the value of an asset can shift due to multiple factors like geopolitical events, policy changes, the overall state of the economy or just the general mood of investors. So make sure you are updated with news and what might impact the value of your investment. (Please note that this article is intended for informational purposes only. Always conduct due diligence and seek professional advisory before making investment decisions.)

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