How to invest in the best investment plans

Firstly, you should be congratulated for starting to think about your financial planning early in your career. This will go a long way in ensuring success in achieving your financial goals.

Before you start planning your investments you should ensure that you have sufficient life insurance, especially if you have dependents. Even if you do not have dependents at present, it is prudent to buy life insurance, if you plan to get married and start a family in the near future. The earlier you buy life insurance, you can get the benefit of lower premiums throughout the term of your life insurance policy. As far as life insurance is concerned you should avoid insurance cum investment plans and instead go for a pure term plan. You can get adequate life cover or sum assured at a low cost with a term plan, which will leave you with sufficient surplus to invest towards your financial goals.

Secondly, you should also ensure that you have enough health insurance or Mediclaim. If you are covered under your employer's group health plan, then you do not need to buy Mediclaim. However, if your family members are dependent on your company health insurance plan for their health cover, then you should evaluate the amount and nature of cover provided to your family members, and then decide if you want to buy a separate family floater plan to get a comprehensive health cover for your family members.

Thirdly, as part of prudent financial planning, you should create a contingency fund that will cover large unforeseen expense or temporary loss of income. While the amount of contingency fund need differs from individual to individual, it should be at least 6 to 12 months of expenses.

Finally, the balance savings should be invested towards your short term, medium term and long term financial goals. Short term goals are the ones that you want to achieve in the next 12 to 24 months (ex. Buying a vehicle), medium term goals will be achieved over the next 3 to 5 years (ex. Buying a house) and long term goals are the ones that have an investment horizon of 5 years and beyond (ex. Retirement Planning). For your short term goals, you can invest in bank fixed deposits or short term bond funds. If you can take little risk, then investing in short bond funds may give better returns than fixed deposits, since the interest rate environment is expected to be favorable. For the medium term and long term objectives, you should invest your balance savings in monthly systematic investment plans of good diversified equity mutual funds. If you go through our articles, you will see that good diversified equity funds have created substantial wealth for investors over a time period of 15 - 20 years. It is seen that many young people prioritise short term goals over longer term goals. It is a costly mistake, because it will potentially leave them short of their more important long term goals. Therefore you should give equal if not more importance to your longer term goals. From an asset allocation perspective, at your age, 80 to 90% of your investment portfolio should be in equity and 10 - 20% in debt.