Investments : Classify your investment in these 4 easy terms

Financial Planning | Investments Planning

When it comes to investments, end goal is of uttermost importance. If you don’t have an end goal, the investment might not fulfill its purpose, and when you would actually need it, there can be a chance that you don’t reap the returns that you expected. Hence, it becomes essentially crucial to plan the end goal and plan your investments according to it. Interestingly, if you visit a financial planner for investment planning, you might find that one of the most common ways to categorize them is time buckets or goals. As both these terms are inter-dependent on each other, you can pick either of them to plan your investments.

In this article we discuss simple guidelines one can follow while planning his investments as per time and goal criteria. Classification would help to set a time frame to achieve a monetary goal. You can understand that whether you have over invested or under invested for a particular goal and can then analyze what type of investment vehicles you would need.

These are the 4 Easy Terms in which you can classify your Investments

1. Emergency Funds :

A standard financial planning rule says that 3-5 times of your salary should be set apart for emergency needs. Emergency funds, when required, need to be realized immediately. Hence, they are usually kept in a more liquid form and seeking a good return is not a main priority with them. Savings account and, fixed deposits, liquid mutual funds are primary options available for emergency funds.

2. Short Term:

Savings for short term goals such as buying a car, planning higher education, minor improvement in the house etc. You can select a time bucket of 1-3 years for short term goals and plan your investments accordingly. Short term investments, preferred usually are fixed deposits, recurring deposits, debt and balanced mutual funds, debentures and bonds.

3. Medium Term:

Time bracket of 3 to 5 years is usually considered apt for defining medium term goals which include purchasing a house, relocating to a new place, wedding or even sabbatical leaves. When exploring into medium term plans, balanced mutual funds, equity mutual funds, debt investments, fixed maturity plans etc.

4. Long Term:

Financial goals that span out beyond 5 to 7 years can be considered in long term goals. These can include education of your children, or can go as far as to your retirement. Equity, real estate, pension funds are a few old but still gold options when you consider long term investments.

There might be a thick chance that you might go for loans and other finances in order to accomplish your goals. Whenever going in for a loan, do make sure you match up to the lender’s requirements and service the interest and EMI without putting your financial terms to strain.

A lot of investments are even planned around the loan and its down payment. The reason for this is the higher return that the financed would reap and turn the loan into an easy liability.
Further, when planning for the medium and long term plan, risk appetite is highly critical in deciding where you are going to invest.

Hope these investments classification helps you.
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