Financial Factors to Consider before Investing: Things to Consider while Investing

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Financial Factors to Consider before Investing – Investment is the process of acquiring an asset for generating income in the short-term or long-term period. The income may be earned through regular income from the asset or through appreciation over a period.financial factors to consider before investing

The most common and popular investment options are fixed deposits, real estate, mutual funds, stocks, provident funds, and gold. There are various investment options and plans available in the market. There are different options for different needs.

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Financial Factors to Consider before Investing

If you are planning to invest, you must consider the following factors:

  • Investment Objective

The objective of investment differs for different investors. It is the first factor to be considered when planning or exploring investment options. If the objective is to have income for retirement or a child’s education, long-term investments like real estate are ideal. However, if the objective is to generate regular income, short-term options like fixed deposits are suitable.

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  • Investment Period

Different investments have different periods. Therefore, you must align this factor with your investment objective. For example, a public provident fund has a lock-in period of 15 years while stocks do not have a lock-in period.

Financial Factors to Consider before Investing

  • Liquidity

This is another factor to keep in mind before investing. If you have liquid cash in your accounts and do not think you will need liquidity in near future, you can consider investing in real estate and bonds. However, if you think you may need to liquidate your assets, investing in stocks and fixed deposits is more suitable.

Financial Factors to Consider before Investing

  • Returns

No investment can guarantee a fixed return. However, you must carefully evaluate the investments and their return rates. You must consider the risk associated with the investments before deciding on an option. For example, gold is usually appreciated with rising inflation. However, the returns on stocks are more. You must evaluate an asset’s performance in the market before investing.

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  • Risk

It is an essential factor to consider for investment. Every investment has a certain amount of risk associated with it. However, the risk level may vary. For example, even though stocks offer high returns, they have a high-risk level. Fixed deposits have a lower risk rate and are considered a safe option to invest in. But the return rate is lesser than other investment options. Therefore, you need to analyse your risk-return ratio for your investment.

Financial Factors to Consider before Investing

  • Taxation

Every investment comes under the purview of taxation. However, the tax rates and deductions may vary. Income from mutual funds and stocks are taxable but the returns from PPF are tax-free. Deductions are available for various investments and returns. Hence, you must check the tax liability along with other factors.

Investments are essential to secure your future. But they can turn into losses if all the factors are not considered and planned. Therefore, the investor must do thorough research, consult an investment planner, and then decide to invest in the most suitable investment options.

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