Investment Strategies: Mandatory Investments And Why You Should Minimize Them

by Vinaya HS on October 7, 2010

in Finance

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When you plan your investment portfolio, it’s a good idea to choose those financial instruments that do not require you to make mandatory investments each month. With this strategy, you gain financial flexibility i.e. you can invest whatever amount you can into your investment portfolio at that point in time.

For example:

Suppose you choose to include a Post Office Recurring Deposit with a mandate of Rs 5,000 per month in your investment portfolio. When you make this choice, you’re locked into depositing Rs 5,000 each month for the next 60-months. On the good side, it does bring discipline, but on the flip side you loose an equal amount of financial flexibility, which I believe ought to be a strong consideration whenever you make a choice of investment.

Now, if you’re looking for both discipline and flexibility, a good option would be to try and minimize the lock-in as far as possible — in this case, you could opt for a 12-month Recurring Deposit at your bank.

Personally, I am locked into one such deposit. The first thing I do each month on salary day is to set this amount aside — I call this my EMI (Equated Monthly Investments).

What do you think?




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{ 3 comments… read them below or add one }

Ajay October 7, 2010 at 8:58 AM
Vinaya H S October 7, 2010 at 10:30 AM

@Ajay:

Thanks for sharing that link. Quite insightful.

Anoop October 8, 2010 at 6:32 PM

As long as you are not financially constrained your lock in amount shouldn’t bother you, anyway its always yours as it comes back to you sooner or later.. I always wanted to have one such lock in account where I deposit money and let it grow over a period of time..

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