# How do you choose the best investment option for yourself?

Author
Anmol Gupta

So, you want to accumulate Rs. 10 lakhs in few years? For what? What's your plan? Well, you must be having some purpose to save those 10 lakhs for. We are sure that you have been a sincere student and learned something from our previous posts :) Anyways, in this post we will take a step closer to choosing best investment option as per your goals.

#### Where you are today? Where do you want to reach?

Let's say you want to save for a goal which will require Rs. 8 lakhs after 5 years. Now, how do we select the right scheme for this goal? To do that, first question we need to ask ourselves is how much can we save today? Suppose after meeting all your necessary expenses, such as rent, food, electricity etc., and paying up for all your other policies, you are able to save Rs. 20,000 a month. You are also expecting to save at least Rs. 20,000 a month in future too, as you have been a good employee and never messed up with your Manager. So, once you have defined your current position and desired future position, it's time for some calculations now. Don't worry, we have our simple Financial Calculator to amaze you :)

#### The simplest case

If you are one of the victims of stock market crashes, you will now want to take the straight path of depositing your money in Bank. Suppose your bank is offering you an interest rate of 8.5% for 5 years, compounded quarterly. How much money will you have accumulated after 5 years by saving Rs. 20,000 per month for 5 years? To do this 'simple' calculation in the simplest way:

1) Go to 'Financial Calculator' tab on top right corner of this page

2) Select Investment Calculator which is ready to calculate your maturity amount

3) Enter your investment amount as 20,000, time period as 5 years, annual rate of return as 8.5% with compounded quarterly, and click 'Calculate'

Now see the result, surprising? You wanted to have only Rs. 800,000 but this way you will have much more! So, what to do? Okay, let’s see how much exactly you need to save to have exactly Rs. 800,000 after 5 years. For that,

1) In the Investment Calculator tab, choose 'What will be my Required Investment Amount'

2) Enter maturity value as Rs. 800,000, period as 5 years, rate of return as 8.5 with compounded quarterly, and click 'Calculate'

So, you need to save only a little more than half of what you are able to save. Wow! Now you must be making plans to party harder on weekends!

#### What if you are not a stock market victim and you feel yourself intelligent enough about financial instruments?

Well, you might think that 5 years is a long term and you can go with some kind of Mutual Fund which will give you more return, and hence, you will need to save even lesser amount. You are on right track. If you are capable of taking a little risk, then you may invest in some kind of equity related mutual fund and expect a return of let's say 12%. In case of banks, you will not have any chance of earning 12% return. Now, let's see how much you need to invest monthly in this fund if you want to have Rs. 800,000 after 5 years. To calculate this:

1) In the Investment Calculator tab, choose 'What will be my Required Investment Amount'

2) Enter maturity value as 800,000, period as 5 years, rate of return as 12 with compounded yearly, and click 'Calculate'.

Now you have even more money to party each month!

#### What if you can save at most Rs. 9,000 a month?

Yes, that will be the most common case. Not all of us party that much. We are constrained by our obligations. So, let's see how much rate of return you need to have Rs. 800,000 after 5 years by saving Rs. 9,000 each month. To do that:

1) In the Investment Calculator tab, choose 'What will be my Required Rate of Return'

2) Enter maturity value as 800,000, investment amount as 9,000, period as 5 years with compounded yearly, and click 'Calculate'

Hmmm, the required rate of return is decently high. A bank will never provide you this much return. A good performing Mutual Fund might give you this kind of return. But, you might not be in a condition to take some risk by investing in Mutual Funds. What to do then?

Well, let's just see how much time will it take you to accumulate Rs. 800,000 by investing your Rs. 9,000 in bank only, as you are not willing to take risk with your money. To do that:

1) In the Investment Calculator tab, choose 'What will be my Required Time Period of Investment'

2) Enter maturity value as 800,000, investment amount as 9,000, rate as 8.5 with compounded quarterly, and click 'Calculate'

Not too bad, right? If you can postpone your goal by 9 months, you will still be able to make it and that too without taking any risk!

#### Seems like it was all about promoting your calculator, what have I gained from this?

Oh man! Didn't you observe how you can make choices between different schemes depending on your time period, risk and budget? And of course, we promote things which are good for your financial health :)