Pattern of Investments
Type of Asset	Age
	25 to 35	35 to 52	52 to 60	> 60 yrs
Cash (SB A/c)	10	10	10	25
Stocks	65	50	25	10
Fixed Income Instruments	25	40	65	65
Total	100%	100%	100%	100%

Two Tables Explained

The above tables taken from ICICI Mutual Fund booklets seek to convey that investing in an instrument is determined by several factors largely depending on the age of the investor and accordingly, based on the age, person's income varies and with variance in incomes, the basic needs of persons also vary. That is why experts have stressed that there is no fixed investment plan which could hold good from Cradle to Crematorium (or Casket).

Selection of investment instrument should take into account a person's need for regular flow of money, his ability to absorb losses since some investments would be more risky than others.

Equity shares are regarded as risky form of investment while a Bank Fixed Deposit or a Government Bond is known to be safe investment.

Hence, the first table highlights factors like income levels, need for income and investment horizon over a person's life span, the second table suggests a recommended percentage of holding one's investment.

Thus, since during early years of life, a person's investment horizon is long term and ability to bear risk is high, a large part, 65% to 50% of one's investment could be parked in equity shares. But with the passage of time and advancing age the person's need for safe, steady and regular income increases for day to day requirements and possible medical bills and unexpected hospitalisation.

This explains low equity investment, high fixed income instrument and equally high part as Bank balance in post retirement segment of one's life.

Risk vs Reward

Investment decision should factor the Risk Reward relationship. Higher the expectation of the returns, greater the possibility of risk.

If an investor lends his money at a interest rate of 30% or more, he must realise that his principal is at risk because the borrower in turn will apply the funds in a highly risky venture which could yield him high returns to afford high interest cost.

That is why Government Securities command lowest rate of interest because they are guaranteed for payment of principal and interest. This relationship of Risk & Reward can be summed up in the choice between "Sleep Well and Eat Well". Those who wish to eat well (expensive food) should obtain high returns on their investment, by their very nature, can result in possible losses also. Fear of loss is bound to disturb one's sleep. So those who wish to sleep well at night must be content with safe investments.

Safe investments yield lower returns and therefore lower incomes making expensive food habits difficult to maintain.

Investment Objectives

A good investment plan should take into account (a) Safety; (b) Liquidity; and (c) Returns, in that order of priority.

An investment avenue which compromises "safety" defeats the very purpose of saving. Hence safety is the most vital objective.

Second in importance is the "liquidity" factor since the ultimate test of an investment avenue is its capacity to provide the liquidity for its owner as and when desired. A "safe" investment may not necessarily be a "liquid" investment, e.g. Real estate. Investments in real estate in a place like Mumbai is no doubt safe but is not liquid. Selling a flat even in Mumbai is time consuming and can entail long delay in finding a buyer and decent price.

And finally, an investment must yield a return. Capital appreciation in the value of investment would also qualify in calculation of the return on investment. In fact capital appreciation is the most efficient form of the return on investment and should be welcomed by the investors.

Inflation

Unlike Income tax, inflation is "invisible" tax, an indirect tax and must also be factored into any investment decision for computing effective returns.

Thus, on savings bank accounts with Banks, we earn at present 4.5% interest. But inflation which is hovering around 6.5% is eroding our savings by 6.5% thereby putting us back by 2% (6.5-4.5). Thus there is a negative return on our money in our savings bank account.

Combined effect of income tax and inflation can also yield a negative return, e.g. if we put Rs.1,00,000 at 10% return, our annual gross interest income of Rs. 10,000 will first be reduced by income tax of Rs 3,000 (30%) leaving after tax Rs. 7,000. Then there is inflation of 6.5%, that is, Rs 6,500. Thus, there is negligible return of Rs.500 which is on our principal capital of Rs.1,00,000.

Thus a good investment a venue should yield a decent return post tax, post inflation. But such avenues are difficult to locate since they may not be safe.

Strategies

Before venturing in the wonderland of investment, certain other issues also need to be noted:

• Set your Financial Goals - Short term and long term. Purchase of TV, Refrigerator, car, vacation could be some short term goals while a house, children's higher education, marriage, retirement planning could be long term goals. Setting goals is very essential.

• Pay yourself a Salary - Out of your earnings, you must set aside 10% to 25% as your salary to yourself which could go as savings into a separate bank account for use as your investment vehicle.

• Budget your Expenses - It is the outgoings from your income which need to be first recorded, monitored then checked and finally curtailed. Do cut down on your credit cards and ATM, number and amounts. Everytime you have an impulse to buy anything, ask yourself if you could go without it. Also think of future value of the present money you want to blow up. Think of IFCI Millionaire Bond in which Rs. 10,000 become RS. 10,00,000 after 30 years. So when you think of buying a VCR of Rs. 10,000 tell yourself, must I blow up Rs. 10 lacs over a stupid VCR? Can I afford it?

• Having controlled your outgoings, you are on your way to generate surplus for investment. You should invest only your silent money, money you will not need in short term. Such money could be invested in equity shares for long term benefits.

• Take full advantage of tax rebates, deductions attached to your investment contributions and investment income. Only two Sections merit close look. Section 80 L for income and Section 88 for investment. Ensure your investment in a manner to yield dividend income of at least Rs. 15,000 including Mutual Fund income and attempt to put Rs. 60,000 annually in Provident Fund and Public Provident Fund Account (PPF). Rs. 60,000 in a 15 Year PPF Account will balloon to Rs. 25 lacs totally tax free in 16th year.

• Don't block too much money in Life Insurance Policies. Take mediclaim Policies of GIC, get a tax deduction, take GIC Accident Policy and take LIC, whole life low premium policy cover risk of death. Save the money and put that in a PPF account. It is better than LIC Policy.

Equity Shares

Equity share in a company is one of the finest avenues of investment.

It permits of smallest lot of money being put in. You may buy 50 shares of Hindustan Lever every month and have 600 shares at the end of one year and 3000 shares at the end of 5 years. But all common stock shares are not common. Nor are all shares good for a life time. If you are prone to panic at every fall in prices, you should avoid stocks and remain invested in fixed incomes. Few outstanding blue chips should be preferred to many cheap ones.

Diversification

It is not advisable to put all your eggs in one basket. Nor it is advisable to have one basket for every egg. Have fewer baskets so that each is a meaningful one and keeping track becomes easy.

Doing Nothing

By not doing anything about your savings and investment, you are doing something. That is, you are LOSING money, through inflation. So don't keep you money idle. Invest your savings quickly and regularly.

Vigilance

External vigilance is the price of making investment. Keep your eyes and ears open for monitoring your investment. Today's blue chips can be tomorrow's duds.

Best investment today

There is no best investment today, tomorrow or ever. The best investment is one that is best for "you", one that diversifies your portfolio, and stays within your comfort level.