Why is Investment Important?
“Save for a rainy day” goes a wise old saying. While saving worked in the past, today, you need to invest. If you believe that saving and investing imply the same thing, think again.
While saving is a part of your income that you put away regularly, it does not necessarily provide returns and it can only meet your short-term needs. Investing on the other hand, provides returns and helps you grow your capital, which in turn, will help you fulfil your financial goals.
Now that you are convinced that investing is a ‘must’, getting started is the next challenge. Everyone needs some motivation to get started. It is more tempting to spend what you have today than put it away for the future. Our needs for today seem far more pressing than tomorrow’s. Here are five reasons that will change the way you think and make you more determined to invest:
Be prepared for emergencies:
A sudden medical emergency or unemployment can cause a financial crisis. For instance, do you have the means to provide for your family if you were hit by unforeseen circumstances such as an illness that makes you unable to work, or an accident that immobilizes you? Investing helps you create a financial cushion for your family. Ideally you should have investments to the extent of at least six months’ income at all times. Debt-oriented Unit Linked Insurance Plans (ULIPs) will help you accumulate the funds you need for this purpose.
Financial security:
Your financial security depends on how much you invest and how efficiently you do so. Investments can help you build a corpus so that you can generate a large cash reserve. A large cash reserve means no anxiety about your financial security and more empowerment. Investing regularly in equity-oriented ULIPs over the long term has the potential to help you build a sizeable corpus to fulfil this purpose.
Fulfilling financial goals:
Buying your own home, or a bigger home, buying a new car, your children’s education and their marriage are some goals that are important to you. To fulfil these goals, you need the right type of investment plans. Depending on when the financial goal will come up for fulfilment, you can select investment-oriented insurance plans. For goals that will arise in the near future (say 5-7 years hence) debt-oriented or balanced ULIPs would be suitable. You could also choose investment-oriented traditional plans such as endowment plans which mature at around the time the goal comes up for fulfilment or money back plans which provide funds at fixed intervals of time (these are usually suitable for children’s education needs). For goals that will arise in the distant future (beyond 7 years), equity-oriented ULIPs would be more suitable since these ULIPs have the potential to provide you higher returns over a longer period of time.
Wealth creation:
In order to create wealth you need investment options that add an element of growth to your money. Equity-oriented ULIPs have the potential to help you build your wealth kitty over an investment horizon of 7-10 years and beyond.
Fighting inflation:
Inflation eats away at your savings. With each passing year, prices keep rising. Investments help you protect your capital against price rise. A good way to beat inflation is to park your money in investments that offer returns that are higher than the rate of inflation. Equity-oriented and balanced ULIPs come to the rescue here. Historically, equity investments have given returns that are higher than the inflation rate thereby providing investors real returns (real returns = investment returns minus inflation rate).
The figure below show how you can invest
Conclusion:
Whether it is planning for your children’s needs or for your own, investing is essential for your future.
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