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MAJOR expenses are often preplanned.

But if they come unplanned, they may burn a hole in our pocket that may be difficult to stitch quickly.

I recently met a well-educated (IIM graduate) professional, who had just been through a major medical expense (for his father). He asked me for help in reconstructing his financial future.

I tried my bit in enlightening him to start his investments engine with simple and basic principles. Strangely enough, he was unaware of a majority of the below mentioned principles: Start saving: We must start spending less than what we earn. Taking leverage to keep us afloat after a major expense can prove to be like getting stuck in a spiraling storm.

Put your savings to good use:

Letting our savings lying idle in the form of money in savings or current account or even as cash at home will cause our recovery to be a long drawn one. Let me illustrate with an example: Even if you save Rs 10,000 per month and put it in a liquid fund (the least volatile and most liquid type of mutual fund product) vis-à-vis savings account or current account, you end up earning a minimum of Rs 4,000 more per annum (Last 10 years, liquid funds have given average returns of 7-11 per cent per annum vis-à-vis NIL and 4 per cent in current and savings accounts, respectively) Diversification of investments: Invest across investment classes like fixed income, equity, gold, real estate, etc. Due to global and local economic factors, like uncertainty, inflation, currency fluctuations, we must look at all possibilities that fall within our risk-return parameters. Consideration of future requirements and time horizon often drives the asset allocation pattern. Post tax returns: Taxation brackets can influence significantly since there are arbitrage opportunities available for capital market products like mutual funds, equities and tax-saving schemes/instruments.

Monitoring:

When we end up monitoring even the smallest expense, then we must allocate time to monitor our hard-earned money invested. Just one hour per week is sufficient to ensure that we have a complete hold on our investments.

Cut out emotions:

 Emotion is the cause of our investments going awry. We tend to get stuck with our investments because we keep justifying existence of these unproductive investments in our portfolio. Exiting these investments becomes difficult since these erroneous investments tend to make us feel guilty. Even if the decision has been made by us on the recommendation of someone known to us, we must evaluate objectively and exit (even with losses) as soon as we get an opportunity.

Re-balancing:

Investments are like diet ­ they need to be re-balanced for getting proper outcomes. Just as a dietary imbalance can cause a health scare, an investment portfolio imbalance can cause a wealth scare. Going excessively on an asset class that we tend to prefer may not be an appropriate strategy for financial planning. Most Indians have a fetish for physical assets like gold and real estate and hence, we tend to get overboard on them. This can prove to be counter-productive in high-growth phases in tive in high-growth phases in economy. As seen between 2003 and 2007, equity investments far out-performed gold and also they are far more liquid than gold.

Last but not the least, one should get a skilled and honest investment adviser and stick with that adviser for a long period of time. He / she will ensure that most of the above is followed and followed rigorously.

Happy Investing!!

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

1. ICICI Prudential Tax Plan Invest Online
2. HDFC TaxSaver Invest Online
3. DSP BlackRock Tax Saver Fund Invest Online
4. Reliance Tax Saver (ELSS) Fund Invest Online
5. Birla Sun Life Tax Relief ‘96 Invest Online
6. IDFC Tax Advantage (ELSS) Fund Invest Online
7. SBI Magnum Tax Gain Scheme 1993 Invest Online
8. Sundaram Tax Saver Invest Online
9. Edelweiss ELSS Invest Online

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Best Performing Mutual Funds

1. Largecap Funds Invest Online
1. DSP BlackRock Top 100 Fund
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2. Large and Midcap Funds Invest Online

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1. Reliance Equity Opportunities Fund
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1. DSP BlackRock MicroCap Fund
4. Sector Funds Invest Online

1. Reliance Banking Fund
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5. Tax Saver MutualFunds Invest Online
1. ICICI Prudential Tax Plan
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4. Reliance Tax Saver (ELSS) Fund
6. Gold Mutual Funds Invest Online

1. Relaince Gold Savings Fund
2. ICICI Prudential Regular Gold Savings Fund
3. HDFC Gold Fund