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Don’t give investing a miss in 2021: 10-year CAGR of Sensex has been over 10%

2020 might have pulled you back thanks to a once-in-a-century pandemic upending global economies, but 2021 shouldn’t restrain you from taking that much-needed leap that will enhance your riches by a long margin.

February 28, 2021 / 10:22 AM IST

While leap year comes only once in four years, taking the financial plunge doesn’t warrant the wait. Meticulous planning coupled with prudent investments not only gives you an edge in monetary matters but also helps address crucial life goals.

2020 might have pulled you back thanks to a once-in-a-century pandemic upending global economies, but 2021 shouldn’t restrain you from taking that much-needed leap that will enhance your riches by a long margin. So, how can you do so? Let’s find out.

Equity Investment in Buoyant and Emerging Themes

An essential aspect of a financial leap is to counter inflation, which reduces the buying capacity of money with time. This is where you need to bet on equities as they have the potential to deliver inflation-beating returns in the long run. Numbers, too, prove this fact.

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The 10-year CAGR of the Sensex has been over 10 percent, and though the returns were muted, they trumped other asset classes. Today, several buoyant and emerging themes in equity investments are on the anvil, such as IT and ESG (Environment, Social and Corporate Governance).

The COVID-19 pandemic has put Indian IT companies on a different pedigree and has been a game-changer for the sector.

If you want to ride the wave of digitech, there isn’t a better time. On the other hand, ESG has consciously gained traction with the pandemic putting emphasis on ESG factors.

The consensus is that investing in such businesses will be more rewarding in the future as companies are waking up to the importance of adopting and implementing better sustainability practices.

Staggered Investments into Equities

While equity investment should be on your radar, it’s best to invest in equities in a staggered manner to counter volatility and average out the cost of buying.

This is where systematic investment plans (SIPs) in mutual funds can do the job for you as they prevent timing the market and imbibe a disciplined savings habit.

Also, SIPs help you take advantage of rupee cost averaging as you can accumulate more units at a lesser price when markets are down. By staggering your investments, SIPs go a long way in spending more time in the market.

Equity investment with a long-term approach can help you counter the effects of inflation and build a corpus for long-term goals like children’s higher education and retirement.

At the same time, it’s vital to adopt a long-term approach as equities, as an asset class, tend to volatile in the short term. You can make real gains only when you are committed for the long haul.

Build an Emergency Corpus Without Fail

It will not be an understatement to say that the quantum of financial wellness hinges mainly on how well you are prepared to tackle nasty surprises coming your way. Ample evidence has come to the fore that focuses on the dire need to build an emergency fund, equivalent to at least a year’s expense.

The bigger the corpus, the more time you buy during the crisis. Follow the SLR (safety, liquidity, and return) philosophy while building this corpus.

Parking money in bank fixed deposits and liquid mutual funds can help you create this all-important fund in line with the SLR principle to a great extent.

Apart from day-to-day expenses, factor in other essential commitments such as EMIs and insurance premiums in this corpus as missing them can be a roadblock in the wealth creation journey.

Keep your family members informed about this corpus so that anyone can access it in times of need.

Plug Insurance Gaps at the Earliest

While it’s true that you never buy insurance with the motto of making claims, the fact is it gives you peace of mind and financial backup in case of any untoward incident. Buying insurance is no more a need but a necessity in modern times.

While a pure term life policy can help you take care of life insurance needs, health insurance can save you from hefty medical bills. Both these policies safeguard your and your family’s interest against incidents that can be a bolt from the blue.

It’s equally essential to review insurance coverage at different phases of your life. For instance, you need a greater cover when you marry and have a family.

Similarly, with the body susceptible to various ailments as you age, health insurance must be large enough to absorb rising medical bills. Hence, analyse your coverage at different phases and make changes accordingly.

In Conclusion

With the battle against the pandemic still on, you can make this year your own by taking the much-needed leap with these measures that can also embark you on your journey to financial independence.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Rahul Jain is the EVP at Edelweiss Wealth Management.

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