What is investment planning?
Investment planning is the process of identifying financial goals and converting them through building a plan. Investment planning is the main component of financial planning. The investment planning begins with identification of goals and objectives. Then we need to match those goals with our available financial resources. Nowadays there are many investment vehicles to invest in, most common being cash, equities, bonds and property. So according to the funds available we can invest in these vehicles to obtain our goals and objectives.
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Benefits of Investment Planning:
The importance and benefits of investment planning are stated below:
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Family Security: Investment planning is important from the point of view of family security. If anything happens to the working member in the family then the other members of the family will be financially secure by the investment.
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Efficiently manage income: It is quite possible to efficiently manage the income and expenditure of person with an investment plan. Managing income helps the person to manage other expenditures, tax payments etc.
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Financial Understanding: Investment planning helps in understanding about our current financial situation. It becomes easy for an individual to evaluate investment or retirement plan by having financial understanding.
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Savings: One should invest in those investment vehicles which are highly liquid. Funds can be easily taken out from those investments in the case of emergency.
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Standard of Living: The savings created by the investment is very useful in difficult times. For example, death of the working individual in the family affects the standard of living to a great extent. That time the investment made by the working person becomes useful source of income of the family
Objectives of investment planning
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Safety: One of the main objectives of Investment planning is the safety of our family, in the terms of finance. One should also invest in safe investment vehicles. Investment is money market is safer than bond market.
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Income: In order to generate greater income, we need to invest in higher risk investment vehicles to get higher income from it. Investors must analyse properly, evaluate their risk-return ratio and accordingly invest in appropriate asset classes in order to enjoy the benefit of maximisation of returns. Therefore a proper investment planning is very important.
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Growth of Capital: Capital gain is different from the returns in the sense that they are only realized when the securities are sold at a higher price than the price in which it was originally purchased. Selling at a lower price leads to capital loss. Therefore investors who want capital gains should invest in securities for longer term.
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Tax Minimization: An investor may take up those investments in order to opt for tax minimization as a part of his investment strategy. For example a rich businessman may want to seek those investments with favourable tax income in order to reduce tax.
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Liquidity: Many investments are liquid which means they can be easily converted into cash. But achieving this level of liquidity requires sacrifice of certain level of income