Eight must-follow investment resolutions for 2020

7 MinsDecember 27, 2019

It’s time to say adios to 2019 and welcome 2020. Many of us resolve to lead a healthy life, spend more time with family, travel, pursue a hobby, learn a new skill, end procrastination, and so on. Along with these it also important to follow some practices for a healthy financial life.

Here are 8 investment resolutions for you to follow in 2020 that will help your financial wellbeing:

investment resolutions

Resolution #1: I will save more and invest sensibly

Savings is a function of how thoughtfully you utilise your hard-earned money. If you spend money only on things you need, it will facilitate you to save more. That said, saving alone has never made anyone rich, but investments have. Investing in productive avenues helps to counter inflation (which otherwise erodes the purchasing power of your hard-earned money), facilitates wealth creation, helps accomplish the envisioned financial goals, and ultimately adds to your financial security.

Hence, do not procrastinate saving and investing. If you start early, you will have a longer investment time horizon in hand. The power of compounding will work in your favour and help build a bigger corpus.

Resolution #2: I will set S.M.A.R.T financial goals

Planning is necessary to achieve anything in life. You all have financial goals – buying a dream home or car, setting up your own business, providing the best education to children, a foreign holiday, and a blissful retired life. But to achieve these goals a prudent goal-setting exercise and planning is necessary.

When you set goals, make sure the goals are S.M.A.R.T. --- Specific, Measurable, Adjustable, Realistic, and Time-bound. Without this, you could be lost at sea. Investing in an ad hoc manner may not necessarily enable you to achieve your financial goals.

Resolution #3: I will start investing regularly and systematically through SIPs, Bank RD and Flexi-FDs

Wealth creation and accomplishing the envisioned financial goals is a journey. You need to save and invest money regularly, systematically, and with discipline.

Systematic Investment Plans (SIPs), a mode of investing in mutual funds, enforces financial discipline as your money is invested either daily, monthly, quarterly in a respective mutual fund scheme/s.

Here are five key benefits of SIP-ping into mutual funds:

✓ Light on the wallet (you can invest as low as Rs. 500 per month);
✓ Provides you with a set investment path
✓ Helps manage market volatility;
✓ Allows you to build an investment corpus without locking your funds
✓ Is an effective medium of goal planning

To know the SIP amount you need to achieve an envisioned financial goal, use Axis Bank’s SIP calculator.

Ensure that you select the best mutual funds congruent with your financial needs.

If you are not a risk-taker, want to build wealth steadily, and securely --- earning fixed returns; consider Axis Bank recurring deposits (RD). A bank RD can help you plan for short-term as well as long-term financial goals. The interest rates will vary depending on the tenure you choose. To calculate the maturity value and interest on your RD, use Axis Bank’s Recurring Deposit Calculator.

Similarly, an Auto Fixed Deposit that links your existing savings account to the fixed deposit is a meaningful way to invest regularly. By doing so, you will able to address your liquidity needs vide the savings portion, and earn a higher interest rate on the Fixed Deposit portion.

Link your Axis Bank Auto Fixed Deposit can to your Axis Bank savings account to enable automatic transfers in multiples of Rs 5,000 to a fixed deposit when the balance in the savings account crosses Rs 25,000. Moreover, the money in the fixed deposit can be accessed easily via a cheque or ATM withdrawals. This amount is automatically reverse-swept from the most recently formed FD (in units of Rs 5,000) to your savings account whenever the balance in the latter (i.e. savings account) falls below Rs 25,000.

From a diversification point of view holding some portion in a bank Fixed Deposit is advisable.

Resolution #4: I will maintain a rainy day fund

Life throws up unpleasant surprises when you least expect them. Particularly, events such as a layoff, critical illness of a family member, unexpected expenses (house repairs, fixing a car breakdown), and so on, can impact your finances. Most individuals pull out funds from their savings and investments in such events, impacting their peace of mind and financial future. But if you save for a rainy day, i.e. build an emergency fund (also known as contingency fund), you will be prepared at all times.

[Also Read: Why should you build an Emergency Fund]

Ideally, hold 6 to 12 months of regular monthly unavoidable expenses, including EMIs as an emergency fund/rainy day fund/contingency fund. Conservatively 24 months of regular monthly unavoidable expenses, including EMIs could be held. This money for your rainy day fund could be held in a separate savings bank account, earning interest at the rate of 3.5%-4% per annum, as opposed to it lying idle at home. Doing this will ensure easy access to your money, during an emergency. Axis bank provides an Emergency Fund Calculator which tells you how much you need to save for contingencies and helps you get a customised savings plan based on your savings and spends pattern.

Resolution #5: I will ‘protect’ my family’s financial future

To safeguard the interest of your loved ones and dependents, make sure you have an optimal life insurance cover. While buying life insurance assess your Human Life Value (HLV). For estimating HLV, take into account:

- The life expectancy of your spouse
- Number of children and other dependents
- Financial goals of your dependents
- Your monthly household expenses (excluding your personal expenses)
- Lifestyle expenses
- Total expenses of dependents
- Contingency reserve (if any)
- Assets
- Current insurance (if any)
- Outstanding loans
- Cost of inflation

A pure term insurance plan is by far the best to indemnify risk to life, given the core objective of insurance.

Similarly, with healthcare costs getting dearer; make sure you and your dependents have an optimal health insurance cover. This is because a sub-optimal insurance cover could drain your hard-earned savings and investments in case of hospitalisation and jeopardise your financial goals.

Resolution #6: I will aim to maximize tax saving

The Income-Tax Act, 1961 offers a host of exemptions, deductions, and reliefs. Make the best use of these and legitimately save tax. Section 80C of the Act, for example, offers several avenues to save tax. Choose the tax-saving avenues that are best suited for your risk profile, investment objective, time horizon, and financial goal. As far as possible complement investment planning and tax planning.

Some of the options available are ELSS (Equity-linked Savings Scheme), Life Insurance Plans, NPS (National Pension System), the 5-year tax-saver bank fixed deposit, Public Provident Fund, Sukanya Samriddhi Yojana, etc.

Avoid procrastinating tax planning to the last minute and resorting to sub-optimal utilisation of tax-saving options. Engage in a holistic tax planning exercise right from the beginning of the financial year and make tax-efficient investments. Remember, a penny saved from tax, is a penny earned.

Resolution #7: I will timely review my investments

A portfolio review will enable you to cull out underperforming or inappropriate investments, reinvest in better alternatives, consolidate the investment portfolio, optimise diversification, rebalance the portfolio (if need be), and ensure that you are on-track in the journey of wealth creation to accomplish the envisioned financial goals.

Thus, make it a point to review your investments bi-annually or at least once a year. Reviewing the investment portfolio too often may not be a sensible idea; your investments need to be given the required time to perform.

Resolution #8: I will handle all investment paperwork prudently

In this digital age, even if you are transacting and investing online, documentation is essential; you just can’t ignore it.

Therefore, meticulously maintain records and categorise your document into:

• Personal documents [PAN Card, Aadhaar, Passport, Voter ID, Driving License, etc]
• Certificates [birth, marriage, death, domicile, school leaving, and education]
• Investment, insurance, and banking-related documents [Mutual fund account statements, insurance policies, fixed deposit certificates, bank passbooks, acknowledgement from banks, etc]
• Estate documents [Purchase agreement, sale deed, leave & license agreement, stamp duty and registration receipt, rent receipts, share certificate, loan statement, loan re-payment statement, acknowledgement letter from the society, etc]
• Taxation related documents [Form16, bank statement, loan statements, HRA supporting documents, charity receipts (to claim deduction under Section 80G), tax-saving investment proofs (to claim deduction under Section 80C), health insurance premium receipts (to claim deduction under Section 80D)]

File these documents efficiently and regularly (monthly or quarterly), plus rearrange them carefully if need be.

In the entire exercise of making financial or investment resolutions, involve your spouse or adult children. Their viewpoint could bring in a new perspective to the exercise, whereby you may add a few more key investment resolutions. Finally, how you truly and conscientiously keep up with many of these resolutions will bring in the positive change you wish to see.

Wish you A Very Happy & Prosperous New Year!

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.