Investment planning is an important part of financial planning. It involves understanding your current financial preparedness, identifying your future financial goals, and developing a plan to achieve them. Investment planning refers to aligning your investment to your financial goals.

Investment planning also involves investing across multiple options, such as stocks, bonds, insurance, real estate, gold, cash, and alternative investments, among others, to spread your money and reduce the risk offered by any single investment option.

Investment planning helps you manage your finances in a way that aligns with your long-term goals and enables you to be on track to meet them.

Investment planning objectives

Investment planning can be used for multiple financial objectives, depending on your needs. Below are some key objectives:

Financially independent retirement

The right investment planning is important to ensure that you always have sufficient money for your needs and financial goals during your non-working years. It helps you stay prepared for inflation, health expenses, emergencies and more. It also enables you to meet your post-retirement goals such as buying a house, traveling, starting a new venture, and more. By investing in the right plan, such as a retirement annuity plan, you can stay financially independent even during your retirement. Retirement annuity plans provide you with a fixed income for life that can enable you to meet your financial needs post retirement.

Tax* saving

The right investment planning can help you reduce your taxes to a large extent. You can invest in instruments that offer tax* benefits. For example, various life insurance plans offer tax* benefits under Section 80C and Section 10(10D) of The Income Tax Act, 1961. You can also choose to invest in instruments like Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), and more to save tax.

Beating inflation

One of the primary goals of investing is to beat inflation. Inflation is the rise in cost of goods and services over time. This means, you will have to pay more for the same goods and services. In other words, you can buy fewer goods and services with the same amount of money. The right investment planning can help grow your hard-earned money to beat inflation and stay financially prepared always.

Achieving financial goals

Investing can also help you achieve your short, mid, and long-term financial goals with greater ease. There are multiple investment instruments where you can invest based on your financial goals and requirements. For example, if you have a short-term financial goal like buying a car, you can consider investing in short-term investment options like bonds, debt mutual funds, and more. On the other hand, for your long-term financial goals such as your child’s education, you can invest in a long-term option such as a Unit-Linked Insurance Plan (ULIP), shares, and more. Investment options like Fixed Deposits (FDs), liquid funds, and more may be appropriate for mid-term needs.

Getting additional income

Investment planning can help you create a steady source of income to cover your daily needs and expenses. Several investment options offer dividends, regular income payouts, growth of money, tax* benefits, and more. These add to your regular income during your working years to meet your financial requirements.

Benefits of Investment Planning

Below are some key benefits of investment planning:

Risk management

Each investment option comes with its own risk. Some options such as equity and equity-related instruments offer higher risk compared to debt and debt-related instruments. However, they carry the potential to offer higher returns as well. It is important that you invest across multiple options so that you can maintain a balance between risk and returns.

Investing across multiple options helps spread your money across instruments and reduce the risk offered by any single investment option. This helps to safeguard your investment from external factors.

Tax* minimisation

Proper investment planning can help you save tax by investing in instruments that offer tax* benefits. For instance, investing in National Pension Scheme (NPS), term life insurance plans, ULIPs, endowment plans, ELSS mutual funds, and more can help reduce your taxes.

Financial security for your family

Investment planning helps ensure financial security for your loved ones. It can help you plan for your child's expenses, spouse's needs and parents’ wellbeing. It can provide a regular stream of income to cover the family's financial needs. Investments such as life insurance policies are particularly important for this purpose as they offer financial protection and security for your loved ones.

Financial preparedness for emergencies

Investment planning helps you stay prepared for any financial emergency. A well-planned investment portfolio provides you with the ability to withdraw money from your investments in times of need. This ensures that you have access to your funds whenever required.



Steps for Investment Planning

Below are some key steps for planning your investments:

Step 1: Identify your financial goals

The first step in investment planning is to identify the financial goals for which you want to invest. You may have short, mid and long-term goals. Identifying each of them will help you understand the time horizon you need to invest for to achieve your goals. Identifying your goals will also help you calculate the amount you will need to achieve these goals. It is important to factor in inflation into this calculation.

Step 2: Assessing your current financial preparedness

The next step in investment planning is to assess your current financial preparedness. You may have prior investments that can help you achieve your financial goals. You can also check your current income and expenses to calculate the amount you can set aside to invest further.

Step 3: Check your risk appetite

The next step in your investment planning is determining the level of risk you are willing to take. This is also known as your risk appetite or risk tolerance. This depends on factors such as your age, income, financial preparedness, goals and more. When you are young, you have fewer responsibilities. You also have a long time horizon ahead of you and have time to make up for any losses along the way. Hence, you have a higher risk appetite. As you grow older, your responsibilities increase. Hence, your risk appetite reduces.

Understanding your risk appetite will help you shortlist the instruments you would want to invest in.

Step 4: Create a diversified investment portfolio

An investment portfolio includes the investments that you have made across various instruments. It is important to focus on diversification in this step. A diversified portfolio consists of various investment instruments and asset classes like stocks, mutual funds, insurance products, gold, cash, real estate, alternative investments, and more. A well-diversified portfolio can help minimise risk and maximise returns. The instrument that you choose to invest in must align with your requirements and enable you to meet your financial goals.


Investment planning helps you grow your hard-earned money for your future financial goals. It is important to have a proper investment plan in place that aligns with your financial objectives, risk tolerance, income and requirements. Additionally, you must keep in mind that investing always carries some level of risk. However, with proper planning and risk management, you can minimise that risk.

1) How can I determine my risk tolerance?

It is important to identify your investment goals to determine the right risk tolerance. Your goals may be short term such as buying a house or long term such as saving for retirement. If you have more time in hand to invest, you may be able to assume higher risk.

For example, when saving for retirement early in life, you may want to follow an aggressive investment strategy to grow your savings. On the other hand, when you are closer to retirement, you may want to invest your savings in safer investments.

Your financial stability also plays a role in determining your risk tolerance. If you have a stable income or have multiple sources of income, you may be able to assume higher risk. If you are easily affected by market fluctuations, you may not have a high risk tolerance.

2) What are the common mistakes to avoid in investment planning?

Mistakes made during investment planning can significantly impact your financial goals. To achieve your goals seamlessly, it is important to educate yourself thoroughly about your investment options, exercise patience, diversify your portfolio across different asset classes and make decisions based on rational analysis rather than emotions.

3) How do economic factors impact investment planning?

Economic factors, such as inflation and market fluctuations can have a significant influence on financial investment planning. Inflation is the general rise in prices of goods and services over time. This can reduce the real value of your returns. To help counter inflation, you must pick investments which provide a higher rate of return than the inflation rate. Stock market fluctuations can lead to both drastic profits and losses. So, it is essential to take these factors into account. This can help you take advantage of favourable economic conditions and mitigate risks.

4) What are some strategies for minimising investment risks?

Minimising risks requires strategic investment financial planning. Diversification is one such recommended strategy that distributes your money across various assets, such as equity, debt and more. This helps you balance out risk and returns in your investment portfolio.

Additionally, adopting a long-term investment approach can also help. Long-term investments are generally less affected by short-term market fluctuations. It is also important to keep a track of the market and the performance of your investments regularly.

5) What is the difference between short-term and long-term investing?

Short-term investments typically have a time horizon of less than a year. These investments are beneficial when you need quick access to your money. Typically, short-term investors use market fluctuations to make quick profits. Long-term investors focus on investment horizons of longer periods. They aim to balance risk over time and benefit from the power of compounding returns.

6) How often should I review and adjust my investment plan?

It is important to monitor the performance of your investments and ensure that they are aligned to your financial goals. It is recommended to review your investments at least once or twice a year. For long-term investments, you must not change your investment plans basis short-term market volatility.


People like you also read...

*Tax benefits are subject to conditions under Sections 80C, 80D, 10(10D), 115BAC and other provisions of the Income Tax Act, 1961. Goods and Services tax and Cesses, if any will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for more details.


Back to Top