What is the importance of Investment Planning?

What is the importance of Investment Planning?

by 5paisa Research Team Last Updated: Dec 09, 2022 - 10:30 am 52.4k Views
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Investment Planning is the essential component of a financial plan which enables individuals to fulfil their life goals and any aids to overcome any financial crisis.

Traditionally, Indian investors have always preferred fixed income securities where the returns are assumed and have compromised on the returns. Indian investors are risk aversive. But with the changing trend and popularity of stock market returns many of them are taking the risk and investing in equity. Investment planning is a must in today’s world without which you cannot fulfil your life goals and sometimes may end up in a financial crisis. If we are taking investment decisions today that will directly affect our future wealth, it would make sense that we utilize a plan to help guide our decisions. 

Some of the fundamental investment rules are:

  1. Start early  

  1. Invest regularly  

  1. Ensure adequate or higher returns on your investment.

Taking some time to put together a financial plan can reap tremendous benefits. Nobody plans to fail but many fail to plan. It is important for investors to realize that planning is very important.

We have listed some common mistakes in the investment planning process. It may be helpful to be aware of some common mistakes people make when approaching investments:

  • Don’t set measurable financial goals  

  • Make a financial decision without understanding its effect on other financial issues  

  • Confuse financial planning with investing  

  • Neglect to re-evaluate their financial plan periodically  

  • Think that financial planning is only for wealthy  

  • Wait until a financial crisis to begin investment planning  

  • Expect unrealistic returns on their investment  

  • Believe that investment planning or for that matter financial planning is primarily tax planning.

These are some of the most common misconceptions about investment planning. An individual should first adequately set their goals and objectives which are achievable and then they should proceed further with their plan. Investment planning provides direction and meaning to one’s financial decisions. It allows one to understand how each financial decision affects other areas of finances. By viewing each financial decision as a part of a whole, one can consider its short-term and long-term effects on life goals. One can also adapt more easily to life changes and feel more secure that goals are on track.

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