Investment is a common word used by all of us in our everyday life. But what definition would you give if somebody asks ‘What is meant by investment?’

Still thinking? Instead of searching for definition lets understand it from the deep. I am not an investment expert having years of experience but I always try to understand the importance of investment and do it for myself because accumulating wealth counts than being rich.

Why we invest?

The answer is quite simple; we want to grow our money. That’s it. Like some people misunderstand, investment is not just the process of putting money in mutual funds and share market. Investment can be done in hundreds of ways. Be it real estate, gold or whatever. The ultimate aim is to increase the value of our money.

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Why growing money is important?

Because we live in an unpredictable economy and the inflation rate is very high. If we accumulate money and never invest it then the money will start shrinking. The current inflation rate in India is 7.2%. So if we want to keep the value of money, we should invest in any option which gives interest rate more than inflation.

Investment is simply the process of exercising money. We can make our money grow just as we do with our muscles with regular exercise. Never let your money sit idle.

Why planning is so important…

Now you know why growing money is important. But investing in random options is not going to be a perfect choice. We invest because we need money at specific times. Let it be after retirement, child’s education, marriage, vacation, purchasing home, car etc. if we don’t plan accordingly then we will be in big trouble when actually need money. If a person is investing then he should be able to justify the need of that specific investment. If he can then he is on the right path.

Retirement is not too far away!

Everybody will retire from their job once. Just imagine the life after retirement? Apart from all that boredom that can happen, money will play an important role. We need money to move on. This is when we realize how smart we were with our money. Nobody knows what is future has in store for us. If nobody is there to take care and you were not smart enough with investments then you are gone.

If 26 year old person’s basic monthly expenses (apart from loans and luxuries) are Rs 15000 a month then when he retires after 30 years he will be in need of Rs 1.2 lacs (considering 7.2% inflation) as monthly expenses. Just think what would happen if you are not investing smartly !

Where to invest?

Investment options are numerous which are categorized into different risk profiles. Recurring and fixed deposits, PPF. ULIPS. SIPs. Mutual Funds, Bonds, Direct equity, ELSS etc are some examples. While some listed in the low risk category, some other options like direct equity are categorized as high risk investments. When a low risk investment such as PPF gives you a return of 8.8% the high risk investments’ return could be between 12%-35% (according to the economy).

Read Everything about PPF

We are the one to take smart decisions. Remember “there is no free lunch”, risk and returns are directly proportional.

Conclusion:

People from India are on the path to financial literacy. Let’s think smartly and secure our future by understanding the importance of investments.