December 21, 2008

How to Choose the Right Investment Plan?

We often receive phone calls from various financial institutions marketing for their investment plans. While at the first go the investment plan appears to be very much attractive with guaranteed high returns (often quite more than that offered by banks’ fixed deposits). Although some of the plans do actually perform that well but most of them don’t live up to our expectations- or we can say that we expected something that the plan was not even offering. This is sometimes because of our carelessness in studying the details and sometimes because of technical words and data presented by the representatives that are hard to be understood by a layman. But we can always ask them a few simple questions and adopt the following procedure that would guide us in choosing the right investment plan:-
1. Set your priorities – You should be clear as to the type of investment you are willing to make. If you have saved money for insurance, don’t go for just another investment scheme because it is offering very good returns. Ask the representative for schemes that match your priority. They always have the best scheme for everyone’s needs.
2. Ask clearly whether the returns offered are guaranteed or not - Almost every scheme that offers guaranteed returns has this fact clearly mentioned in its brochure. If this is not mentioned, the returns might not be guaranteed. Remember, there is a lot of difference in giving high returns over a past period and guaranteed returns.
3. Ask for the Lock-in period – Sometimes, investment plans offering good returns have a long lock in period which is not explicitly disclosed in their plan details. Be sure whether you are ready to put you money for such a long time. Also ask for the penalties and charges for withdrawing your money early. This would enable you to determine the right amount to invest. May be an amount which you would not require regularly in near future.
4. Get the details of Tax Incidents on Income – Be sure to ascertain that whether the income generated from the investment in tax free or not. Often a 10% tax free return is actually more beneficial than a 14% taxable return.
5. Note down all the benefits of the plan – Although all the benefits will be explicitly available in the brochure but it is always better to have them arranged at one place for evaluation. Sometimes some of the benefits mentioned may not be beneficial to you. For example, the plan has section 80C benefits on investments made. But since you had already invested Rs. 1 Lac under 80C benefits this is not useful for you.

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