World Financial Planning Day 2023: Five tips to become a crorepati

“In simple terms, the two main tasks for an investor are to identify the asset allocation that suits their objectives, profile, investment horizon, and circu

Today, October 4, is World Financial Planning Day. This is an initiative of the International Organization of Securities Commissions (IOSCO). World Financial Planning Day is observed to help raise awareness about the importance of financial planning. Besides being aware, it is very important for everyone to be financially independent.

On World Financial Planning Day 2023, here are some tips that investors should follow for wealth creation.

1) Diversification of the portfolio

Portfolio diversification is a fundamental investment concept based on the principle that various asset classes perform differently in different conditions. It involves constructing a portfolio that includes a mix of different asset classes, such as cash, stocks, debt, alternative investments, and commodities.

By spreading investments across different instruments, investors can reduce the impact of any investment's poor performance on the overall portfolio at any point in time.

“In simple terms, the two main tasks for an investor are to identify the asset allocation that suits their objectives, profile, investment horizon, and circumstances, and then ensure that they manage the inevitable ups and downs in the markets and avoid making mistakes,” said Shiv Gupta, Founder, and CEO of Sanctum Wealth.

2) 50-30-20 Budget rule

This personal finance rule states that individuals should divide their income into three categories. 50% should be allocated for spending on needs, 30% on wants, and 20% on savings.

3) Balancing your debt and equity allocations

A 60:40 portfolio means investors should have 60% equity and 40% debt. “Investors should first think about their risk tolerance and capacity,” said Pankaj Mathpal, MD & CEO, Optima Money Managers.

He also added that equity assets will help increase the value of their investment in the long term, in about 7 to 10 years, while debt assets will provide security for funds when markets are volatile.

4) Rejigging portfolio with increasing age

Personal finance experts suggest that investors should increase their exposure to debt by 5% after ten years. In simple terms, when we are young, our risk tolerance is very high. As we age, we should increase our exposure to debt instruments.

5) Increasing monthly investment with a rise in income

To become a crorepati, one must increase the SIP of their mutual funds annually. SIP experts suggest step-by SIP.

A step-by SIP is an automatic increase in the SIP amount by a pre-determined percentage. For eg. An SIP of INR 10,000 was made this year. An increase of 10% means the SIP amount for next year will increase to Rs 11,000 (10% of Rs 10,000 = Rs 1,000).

Mathpal said that the normal annual SIP step-up suggested is 10 percent, but for such an ambitious investment target of Rs 1 crore in 10 years, it is necessary to maintain an annual increase in SIP of 15 percent

Disclaimer: The views and recommendations made above are those of individual analysts and not those of Business2Business. Investors are advised to consult certified experts before making any investment decisions.

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