Did you plan on achieving a goal at a certain stage of life and were not able to meet the financial target you had set for the same? If your answer is yes, here's what you need to do!
Ever since Samar was 7 years old, his father Ramesh has been saving for his higher education. Ramesh wants his son to pursue a career in journalism from a university in the United States of America. Samar is now 14, and by the time he reaches the age of 20, it would be time for him to go abroad. However, while evaluating his savings, Ramesh realized that he hasn't met the financial target that he had set for himself. He now wants to catch up.
Many of us may find ourselves in such a situation at various stages of life. The mathematical accuracy and the real-life performance of a financial plan are two very different things. You may have catered to every possible detail, but the discrepancies in the plan and the precariousness of life soon start to show. Unfortunately, sometimes, the corpus that we create falls short of the amount we need due to various reasons.
How to resolve this shortfall?
Very often, we are unable to make an estimate of what the cost of achieving a goal may actually be. In Ramesh’s case, it may have been possible that over the years, there was a huge increase in the fee of the university, air tickets, the boarding and lodging etc. Also, the constant rise in inflation causes a decrease in the value of money that one may have collected over the years. There have been cases where people suffered in ways of a lost-job, a delayed promotion or an emergency expense, that dug deep into their savings.
Nevertheless, it is not the end of the road. There are certain short-term investment plans that Ramesh or people sailing in the same boat can explore as they give good returns. Most financial plans generally are about long-term planning. However, at different junctions of life, it is short-term investment plans that come to the rescue. Short-term investment plans not only help us fulfill certain requirements but can also play a key role in managing a shortfall in your investment corpus which is part of a long-term investment. Inflation continues to rise, making it all the more important for people to invest in options that offer better returns than the traditional means of saving. Many of us also look for a more low-risk portfolio.
Prioritize your Objectives
Having a specific objective of investment is imperative. If you too are aiming at the creation of wealth to manage shortfall in your investment corpus, then you must think of an increase in allocation of your funds. However, you must also be extra cautious about the risk factors.
Diversify the Investments
One of the first options that comes to mind is Equity. In the case of Ramesh, if he decides to raise the allocation towards equities, it may expose him to certain risk. He is at a stage where he is close to his target and so it may not be the best option for him. He, therefore, can consider alternative options for investment. When you have a portfolio which is variable, you can cope better in a situation where one particular short-term investment doesn’t do as well as the others. Variation helps in balancing and compensating for the shortfall. Investing in ULIP or Unit Linked Insurance Plan gives you the freedom to invest in equity, debt or any other investment instrument available in the market. As the plan is attached to the capital market, it can offer flexibility.
Increasing the horizon of your investments can also help you in managing your investments. It is recommended that you hold your investments. Therefore, the holding period is very important in an investment plan. It plays a key role when selecting a suitable investment choice. Ramesh needs an additional return from all his investments, but a holding period of 5 years may not bring a major change in the total corpus value. So, in turbulent times, try to hold on to your investments as long as possible. Do not allow your everyday expenses to dig into your investments. Generally, the minimum lock-in period of a ULIP is 5 years, which is more than what you would have for mutual funds. However, it surely instills orderliness of systematic and regular saving.
Save more and Pile-up the Quantum Regularly
Once you decide to save on a regular basis, you can then gradually plan to raise the quantum of your savings as well. Here, channelizing the savings also becomes a crucial step. When you invest in ULIPs you receive the dual benefits of investments as well as insurance. When you buy a ULIP, the company on your behalf invests towards your insurance and also an equity fund or debt or maybe both, depending upon your investment plans.
The best ULIP plans that are available in the market today also allow you the flexibility to swap between the unit funds that you hold. Depending on your appetite for risk as well as your market-knowledge, you can invest a bigger portion of your investments towards your insurance and a smaller portion in the market, or vice-versa.
When you wish to save more, you need to be extra cautious about the taxes that you pay. Select a plan that can help you increase your hard-earned savings by getting an income tax rebate under Section 80C of the Income Tax Act, 1961. Getting a tax exemption is one of the main reasons people consider ULIPs to be a great short-term investment plan. Not just your investment, but even the maturity amount that you receive from your plan is exempted under Section 10(10D) of the Income Tax Act.
While most Indians are sensible when it comes to saving, many are not aware of the best ways to do so. With the uncertainties of life, to have a fool-proof financial plan might not be a 100% possibility. Therefore, as an investor, you need to research and must always exercise caution. When finding ways on how to manage the shortfall in your investment corpus, weigh all your options and then choose an option that can help you bridge the gap between what you have and what you need. Happy Investing!
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