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Things new investor should consider before making first investment

It is important to first secure the income and savings against the emergencies, before committing to an investment plan.

ET CONTRIBUTORS|
Sep 09, 2019, 06.30 AM IST
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One must protect income against disruptions before starting to invest.
Kunal has just started working. He earns well and the money is more than enough to take meet all his needs. He has surplus lying in his savings bank account at the end of the month and wants to start an investment plan. His aim is to accumulate funds he can use as and when the need arises. He is also considering a life insurance policy for protection. Has Kunal given sufficient thought to all aspects of his financial situation before he begins investing?

Kunal is doing the right thing by considering investments early in his career. However, it is important for him to first secure his income and savings against emergencies, before he commits to an investment plan.

There may be situations, such as a medical emergency or an accident, which would require a large sum of money that Kunal may not be able to put together with his current salary. Or there may be circumstances which may affect his ability to earn an income itself. In such a situation, Kunal would not be able to meet his expenses, let alone make investments.

Insurance is a way for Kunal to make provisions to face such eventualities. Life insurance is necessary for him at this stage only if he has dependants who he supports with his income. More relevant would be insurance policies that help him deal with unexpected demands on his income.

A health insurance policy will cover Kunal against steep medical bills. A comprehensive motor insurance policy will cover any loss to property or life suffered by Kunal or other involved parties in a motor accident. A personal accident insurance will provide compensation in the event of a temporary loss of income caused by injuries suffered in an accident.

Together, these three policies will help Kunal deal with any unexpected money situations he may face. These are situations that may even push him into debt, and will have long-term financial consequences. Kunal will do well to first incur the expense to protect himself. He can then consider investments with the confidence that there will be no disruption to the income.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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