FINANCIAL LITERACY IN INDIA

India, as the second most populated country with a $3.75 trillion economy and ambitious goals for growth, faces a significant challenge: financial literacy. With over 65% of its population residing in rural areas, both urban and rural Indians lack the necessary knowledge to make informed financial decisions. Despite the emphasis on earning money, discussions about financial management remain sparse in Indian households.

1. Early Investment:

Initiate investments early in your career to secure your financial future.
Avoid unnecessary expenses to priorotize savings and investments.
Challenge misconceptions surrounding investment options like mutual funds and ETFs.

The first rule of investment is to start early. It’s crucial to begin investing from the first salary. It is extremely important to save and invest for future goals from an early, one should avoid buying expensive unnecessary stuff to maintain social status, we tend to buy liabilities instead of assets. There are various misconceptions among people about investment, except for traditional investments like FD, RD, NSC, PPF, and POMIS ( Post Office Monthly Income Scheme ), people lack interest in investing in mutual funds and ETFs. People think it requires in-depth knowledge to invest in the stock market, these are the outcomes of financial illiteracy because of which India has the lowest investment compared to other countries.

2. Setting Investment Goals:

Determine your investment capacity and objectives.
Establish clear investment plans for each goal, considering risk and expected returns.
Seek professional advice to align your investments with financial goals effectively.

One of the first things you should decide is how much you can afford to invest. once you are ready with investment you should ask these questions yourself

what exactly do you want to achieve with the planned investment
set an investment plan for each goal
what is the risk you are willing to take on each investment
what is the return on investment you are expecting

To reach your investment objectives, you might want professional advice. If you decide to engage with a financial advisor, be clear about your financial and investment goals.

3. Risk vs. Reward:

Assess your risk tolerance before investing.
Understand that higher returns often accompany higher risks.
Emphasize the importance of diversification to mitigate risk.

Every investment involves risk, and one must know his/her risk appetite, Investment in blue-chip stocks, and bonds involves low risk whereas investment in small cap involves high risk, Typically, safer assets have lower returns while risky ones could have higher returns. One takes on less risk when purchasing stock in a company that has been reliable for years. Therefore, it is improbable that the investment will experience a financial loss. Equally unusual is the investor making a significant profit soon after purchasing the shares. The person takes a big risk if he puts money into a less reliable business, like a startup in technology. The investor would lose the full value of their investment if the company went out of business within a few months. The business might also become very successful in a short period and grow into a significant corporation in the future. Because of the risk factor that is attached to the many investments people do not consider them, even though many such investments are giving consistently good returns.

One should always remember the fact that one will not get the reward unless risk is taken. however one should evaluate how much risk he is willing to take.

4. Diversification is Key:

Spread investments across different assets and classes to minimise risk.
A diversified portfolio reduces vulnerability to market volatility.
Explore various asset types such as stocks, bonds, and gold for optimal diversification.

We all Have heard the saying, “Don’t put all eggs in one basket” The management of investments follows the same principle. Diversification generally refers to systematically spreading investing funds among various assets and asset classes. A well-diversified portfolio comprises many investment kinds, often known as asset classes, with varying degrees of risk. Stocks, bonds, gold, and cash alternatives are the main asset groups. Under similar market conditions, each asset type frequently exhibits a different performance.

Diversification doesn’t focus on maximizing returns as its main objective. Its main objective is to lessen the effect that volatility has on a portfolio. The biggest portfolio diversity benefits come from investments that move counter to one another.

5. Long-term Investment Strategy:

Acknowledge market volatility as a natural part of investing.
View volatility as an opportunity for strategic buying and selling.
Consider a diversified portfolio for long-term wealth growth and stability.

There are so many instances where stock markets have been described as “Roller coaster” rides. such ups and downs create an impression of stock markets being risky. In general, volatility is driven by changes in government policies, economic prospects, political risks, industry development, climate change and company dynamics. The market tends to exaggerate, particularly in bullish and bearish cycles. The market is usually in an imbalance in the short-term but tends to move towards a fair level in the medium to long term.

In fact, volatility helps us with buying & selling opportunities.& the tendency to outperform the broad market in the long term. Diversification is essential. A diversified portfolio that is diversified across a variety of asset classes (stocks and bonds), sectors and geographic regions can help mitigate risk during periods of market volatility. India’s economy is relatively stable compared to the rest of the world. However, before making an investment decision proper knowledge or input from a wealth advisor is essential if you want to safeguard and grow your wealth.

6. Having a Backup Plan:

Prepare for unforeseen circumstances with a financial backup plan.
Safeguard your family’s well-being through insurance and alternative investments.
Consult with financial experts to ensure comprehensive coverage and asset protection.

Should I have a backup plan for my finances? What if we have a new addition to the family? What if someone passes away? What if a catastrophic event happens? What if the economy collapses? What if we lose our jobs because of the recession? To deal with these scenarios, you need a backup plan for your finances and to ensure the well-being of your family. A financial backup plan not only gives you more money, but it also gives you peace of mind in the event of an emergency. However, many families are financially vulnerable without a financial backup plan.

Many people find themselves struggling to make ends meet just as they’re about to hit retirement age because they haven’t saved enough. With rising health care expenses, you’ll need to have enough savings to cover your retirement expenses over the long term.

Your backup plan should focus on insurance, alternative investment or savings. Your backup plan should consider alternative sources of income during any crisis. Talk to a professional, and make sure there’s no risk to your assets. Your financial planner or investment advisor should be able to provide you with information about alternative investment options and your investment liquidity, in case you need cash urgently.

To further enhance your financial literacy and explore investment opportunities in India, consider these informative resources:

By prioritising financial education and implementing sound investment strategies, Indians can secure their financial futures and contribute to the nation’s economic growth. Start your journey to financial empowerment today!