I have come across many people (irrespective of whether they have a background in Finance or not) who struggle with this topic called Personal Finance. The problem is not that Personal Finance is difficult. It is easy, to be honest. But the plethora of options can overwhelm even a financial expert! There is so much information overload that a simple query on Google can yield thousands of results and that too with very divergent advice.
But Personal Finance need not be so complicated. In this blog, I will try to simplify Personal Finance for you. I will not delve very deep into each aspect but will try to give you a flavour of each category.
– Insurance & Investment. 
Life Insurance
– There are various products that are sold by Life Insurance companies like Term Plans, Endowment Plans, Money Back Plans, Unit Linked Plans, etc. Other than Term Plans all other products are a mix of investment and insurance. Everyone who has or will have a dependent should have a Term Plan a.k.a. Term Life Policy.
Tip: A good practice is to have a Term Plan which has an insurance cover of 10 to 15 times your annual salary. This will take care of the financial needs of your dependents in case of your sudden and unfortunate death.
Medical Insurance – Healthcare costs are rising and they are not likely to abate anytime. One way to cover the cost of hospitalizations is to take a comprehensive Medical or Health insurance plan. A good rule of thumb can be to have a medical cover of around 50% of your annual salary. Many times, employers provide you with Medical Insurance but that may not always be sufficient. You can consider taking a top-up plan which will cover you for a higher amount in a cost effective manner.
Should one purchase insurance?
Yes, definitely one should have insurance (both term life and medical), unless you are very well off and have enough savings to tackle uncertainties.
Once we get the Insurance out of the way, let’s turn our focus on to Investments.
Let’s first understand the broad landscape of investments.
MFs – Mutual Funds
MLDs – Market Linked Debentures
REITs – Real Estate Investment Trust
INVITs – Infrastructure Investment Trust
P2P Lending – Peer to Peer Lending
There are two main ways of investing in Equity assets – via purchasing direct stocks or through Mutual Funds. There’s no one right approach here. If you consider yourself good at stock selection, you can purchase stocks directly. If you are not very confident or if you don’t have the time, you can opt for Mutual Funds. This is not an either / or choice. You can choose to invest some amount through both the routes.
Debt Assets
Almost everyone reading this article must have at some point in time invested in Bank Fixed Deposits (FDs). But FDs aren’t the most efficient debt instruments out there. There are other ways like buying Bonds and debentures or investing via Debt Mutual Funds which can give you better returns. Debt Mutual Funds typically invest in different bonds and debentures but charge you a fee for managing your investment.
You can also consider investing in bonds and debentures directly for a part of your portfolio and enjoy higher returns as compared to FDs and Debt Mutual Funds. However, such investments are subject to risks. Hence, knowing which bond to invest in is the key. That’s where a platform like InCred Money comes in. We understand the importance of due diligence and curating opportunities that align with your investment goals. Our financial experts meticulously analyze financial statements, credit rating reports, and conduct extensive research to ensure the proposals we showcase have a solid foundation. Over the past four years, we have maintained a zero default rate across our alternate investment products, giving you the peace of mind that you deserve.
Real Assets
By real assets, I mean Real Estate or commodities like Gold or Silver. Real Estate can be a good investment but is very chunky and difficult to sell once purchased. Gold is an excellent asset class to diversify your investment. It acts like an inflation hedge and has low correlation with other asset classes. But purchasing physical gold or jewelry has its own challenges like the risk of theft.
But now it is possible for you to invest in the Real assets electronically. I will cover this in the Alternate assets section below.
Alternate Assets
Alternate Assets refer to investing in instruments like Corporate Bonds, Debentures, Private Equity, Venture Capital, High Yield Debt, P2P Lending, REITs, INVITs, etc. Most alternative assets have a low correlation with traditional asset classes and hence investing in them reduces the overall risk of your portfolio. These new age assets also solve the problem of high-ticket sizes that made the physical assets difficult to invest in for the majority of individuals. For example, instead of physical Real estate, one can invest in REITs (which loosely are like Mutual Funds investing in Real estate properties). One can start investing in listed REITs for as low as Rs. 10,000!
We have a detailed blog on what are Alternate assets and why they need to be an essential part of your investment portfolio. You can read more about it here.
Some Final Tips
Tip 1: Save More – Budgeting your expenses can help you save more which will set you on a path of Financial Freedom early in life.
Tip 2: Start Young – The power of compounding works best if you start investing early in life. However, if you haven’t yet started investing properly, do it now. No better time like today to start.
These are some practical guidelines to get you started on your personal finance journey. If you’re still unsure where to begin, consider reaching out to a financial advisor for personalized advice.
Disclaimer
Investments in securities are subject to risks. Read all the offer related documents carefully.
The information contained in this article is for general, educational and awareness purposes only. Reader shall be fully liable/responsible for any decision, whether related to investment or otherwise, taken on the basis of this article and should consult his own advisors to determine the merits and risks of such investment.
