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Home » Demystifying Investment Planning: Understanding What Is Investment Planning and Its Essentials

Demystifying Investment Planning: Understanding What Is Investment Planning and Its Essentials

What is the ideal investment plan for you? Is it a strategy that guarantees a specific amount of returns? Or is it a method that allows you to achieve your financial objectives? The significance of an investment plan can vary depending on individual perspectives.

Furthermore, it should be noted that there is no one-size-fits-all solution when it comes to financial goals and the best investment plan in India cannot be universally defined.

Are you unsure of the best way to begin your investment planning journey and find one that suits your needs? To start, let’s gain a clear understanding of what investment planning entails. 

What is Investment Planning?

Investment planning is the process of aligning your investments to your goals and your risk profile. By analysing your risk profile, you can understand your true potential in investing. 

Here’s how you can arrive at your true potential in investing:

You look for Strengths, Weaknesses, Opportunities and Threats (SWOT):

  • In investment planning, your strengths are your income level, job profile and how early you have started investing.
  • Your weaknesses can be your liabilities and the number of dependents in the family.
  • You can find opportunities in terms of reducing your expenses to the minimum. 
  • Finally, your investments may face threats from uncertainties like inflation, job loss, theft and medical emergencies. 

This SWOT analysis of your investment potential is the barometer for your risk appetite. 

But before investing make sure you consider these factors as every investment comes with risks. 

Factors to Consider Before Investing

Now that you understand investment basics, you must also learn to choose the best investment option as per your financial goals. Listed below are a few steps to help you find the best investment option as per your life goals:

Define your Investment Goals

Every financial journey is different, and hence everyone’s investment goals are different. The first thing you can do is define your investment goals. This will help you with the following:

  • How much money do you need in the future?
  • How much you can invest now?
  • How long do you need to invest?

Choose Investment Options as per Goals

Once your goals are defined, select the investment option. Your choice will depend mostly on the time available for a particular milestone or event in life. For example:

  • If your goal is to buy a car after 3 years, you can invest your savings in a debt mutual fund and achieve your goal.
  • Buying a house after 10 years means you can invest in equity funds and stocks.

Ensure Higher Tax Savings

Long-term investment options can also help you save on tax:

  • Invеstmеnts likе PPF and ULIPs hеlp you rеducе your taxablе incomе whеn you invеst in thеm.
  • Equity mutual funds, gold ETFs, and debt mutual funds enjoy indexation benefits on capital gains if you hold them long enough.

Insure Important Family Goals

Certain family goals like a child’s higher education and marriage cannot be left to chance. So, you should choose investment options that offer good growth as well as protection for the goal.

  • Investment options like ULIPs have a life insurance cover with diversified investment options.
  • Guaranteed Return Plans are safe long-term investments that offer guaranteed returns on the investment that you make. 

Is investment planning really beneficial? Let’s see.

Benefits of Investment Planning

The importance and benefits of investment planning are stated below:

Family Security: Investment planning is important from the point of view of family security. If anything happens to the working member in the family then the other members of the family will be financially secure by the investment.

Efficiently manage income: It is quite possible to efficiently manage the income and expenditure of person with an investment plan. Managing income helps the person to manage other expenditures, tax payments etc.

Financial Understanding: Investment planning helps in understanding about our current financial situation. It becomes easy for an individual to evaluate investment or retirement plan by having financial understanding.

Savings: One should invest in those investment vehicles which are highly liquid. Funds can be easily taken out from those investments in thе case of emergency.

Standard of Living: The savings created by the investment is very useful in difficult times. For example, death of the working individual in the family affects the standard of living to a great extent. That time the investment made by the working person becomes useful source of income of the family. 

But why do we need investment planning? Let’s see.

Objectives of investment planning

Safety: One of the main objectives of Investment planning is the safety of our family, in the terms of finance. One should also invest in safe investment vehicles. Investment is money market is safer than bond market.

Income: In order to generate greater income, we need to invest in higher risk investment vehicles to get higher income from it. Investors must analyse properly, evaluate their risk-return ratio and accordingly invest in appropriate asset classes in order to enjoy the benefit of maximization of returns. Therefore a proper investment planning is very important.

Growth of Capital: Capital gain is different from the returns in the sense that they are only realized when the securities are sold at a higher price than the price in which it was originally purchased. Selling at a lower price leads to capital loss. Therefore investors who want capital gains should invest in securities for longer term.

Tax Minimization: An investor may take up those investments in order to opt for tax minimization as a part of his investment strategy. For example a rich businessman may want to seek those investments with favourable tax income in order to reduce tax.

Liquidity: Many investments are liquid which means they can be easily converted into cash. But achieving this level of liquidity requires sacrifice of certain level of income. 

There are types of investments, but what are they? Let’s see.

Types of Investments

You will find many investment options and you should shortlist the best ones as per your needs. At a broader level, investment can be divided into two categories – Equity and Debt. Equity primarily invests in shares of companies in different ways. Debt is where your money is invested in money market instruments. 

The below table lists different types of investment options in India:

Investment TypeDescriptionRiskReward
StocksStocks represent your ownership share in the company. Stocks will provide a return on investment through changes in the share price, or dividends. It can be highly volatile and is considered one of the riskiest investments. HighHigh
BondsBonds are an instrument of borrowing. Bondholders have the first right to the assets of the company. Thus, these are considered safer than equity stocks. Also, a bondholder’s return on investment will be more stable than a stockholder’s as bonds can have fixed coupon rates. LowLow
Mutual FundsMutual funds are pooled assets that are professionally managed. It can pool money from thousands of small investors and create a portfolio of up to 30 securities to generate a return on the pooled money. Mutual funds allow investors to invest a small amount regularly and choose their asset portfolio as per their risk profile. MediumMedium
Unit Linked Insurance PlansULIPs are life insurance plans that allow you to invest in diversified funds as per your risk profile. You will get market-linked returns and tax-saving benefits on your investments. Life cover will be available regardless of the performance of the invested sum. As per your portfolioHigh
GoldInvesting in physical gold could be expensive, risky, and fraught with storage issues. Thus, you can use an electronic form of gold investment. Gold ETFs and Gold Bonds are some of the popular ways of investing in gold and keeping up with its price. MediumLow
Public Provident Fund (PPF)It is a scheme that offers a good rate of return and a sovereign guarantee. With PPF you can beat inflation, and build handsome wealth, that too completely tax-free. PPF also allows adequate liquidity. Thus, this investment helps you build a safety fund for your family. The account is extendable after 15 years of maturity. So, you can use it to save for your retirement and draw a tax-free pension after 60. LowLow

FAQ: What Is Investment Planning

Why is investment planning important?

Investment planning is crucial as it ensures financial security. It helps you meet your long-term goals, such as retirement, education expenses, and other major life goals.

How to sеt up thе right invеstmеnt plan?

Your investment choices should align with your financial goals, risk tolerance, and time horizon. It’s advisable to diversify the investment portfolio to spread risk.

When should you start investing?

You should start investing as soon as you start earning or even sooner if possible. Money creates more money, and the sooner you begin to work, the better. So, investing early will allow you to accumulate wealth faster and free yourself from financial worries.

How do I make an investment plan?

Investment planning is a comprehensive approach where you learn about yourself and your goals. Follow these steps to make a sound investment plan:

  • Know your risk appetite
  • List your goals
  • Categorize your goals into short-term, medium-term and long-term
  • Make sure you are managing emergencies through adequate insurance
  • Seek professional financial advice
  • Start investing 
  • Track your investments from time to time 


Investment planning is a systematic approach to managing finances and making informed decisions about allocating funds to achieve various life goals. It considers factors such as risk tolerance, time horizon, and investment objectives
to create a strategy that aims to optimize financial outcomes over the long term. Remember, the investment plan varies from one person to another, and it depends on their goals and objectives, as well as risk tolerance.

While creating an investment plan, it’s important to understand the market condition and conduct thorough research to make the most appropriate investment decisions.

Additionally, periodic assessment and rebalancing of the portfolio are necessary to harvest higher returns and reach the financial goals on time.

In short, investment planning is the map to convert savings into wealth and reach life goals without financial distress.