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Three financial mistakes you should avoid at all costs

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The share market is one such place where your investments can grow without any boundaries, only when prudent financial decisions are made. If not, you will sink into loses and eventually enter into a debt trap to repay your financial obligations such as education loan, car loan, etc.

If you are an investor in the share market, and want to avoid losses, here are some steps you should follow:

Do not invest lump sum in one stock:
Do not put all your eggs in one basket. We all know what the consequences can be. Investing in new funds at their peak is one blunder that you might commit if you do not understand your company. Always invest in companies that have proven to have strong fundamentals in the past and have the ability to withstand market crashes. And most importantly, create a diversified fund basket so that if one share does badly you may not lose on the entire amount.

Get a good life insurance cover:
It is very important to assess what your dependents' financial requirements are so that during the untimely death of the policy holder the dependents can benefit from the sum assured. The value of your policy should be at least 5-6 times of your annual income, and enough to repay your outstanding debts, like car loan, etc.

Also, if you have a home loan, taking home loan insurance can take care of the outstanding loan amount, so that at the time of the policy holder's death, the dependents can be benefit from owning the house and not the debt.

Diversify your portfolio:
Most investors in India are risk averse. They are not willing to invest their hard earned money into stocks with the fear of markets not performing. So, as a response to that they tend to build an all-debt portfolio, where their investments, apart from being locked away for a long time, deteriorate in value as well. Gold, PFs, FDs etc., are examples of the avenues which these conservative investors are likely to utilize.

Having a diversified portfolio with reasonable amount of money invested in stocks and debt can guarantee security and growth to your funds in the long term. It is highly recommended to pursue the route of investments through SIPs. This will not only guarantee systematic regular savings, but also ensures that you do not invest all the money into one stock.

Disclaimer: All information in this article has been provided by BankBazaar.com and NDTV Profit is not responsible for the accuracy and completeness of the same.

Story first published on: January 18, 2013 19:03 (IST)

Tags: investment, insurance, gold, provident fund

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