9 Absolutely Important Questions To Ask Before You Invest

Looking to invest? Are you being hard-sold an investment product? Pause and ask these 8 important questions before you sign the dotted line.

What Is My Objective?

Why are you investing? To save taxes? To create wealth? To save for retirement? This is the most important question since it helps arrive at other important decisions, such as which instrument to pick.

What Is My Investment Tenure?

Your objective will have a due date. This helps determine risk appetite and to shortlist the right instrument. For example, you plan to save for your house down payment money in 10 years. Therefore, your investment tenure is 10 years. 

What Is My Payment Capacity?

How much money from your regular income can you set aside every month, quarter or year? Would you be comfortable with this money locked in the investment? Would you be able to manage your regular expenses without this money?

What Is The Return on Investment?

Every investment variety has its own return-generating capacity. Make sure the returns match your objective. For example, if you want to create wealth in the long term, you can pick mutual funds over fixed deposits. Don’t take verbal assurances of returns from the seller – take it in writing.

What Are The Risks?

There’s rarely such a thing as a risk-free investment. Ask about the risks your investment instrument carries. It could be one or several of the following risks: market, interest rate, inflation, returns, liquidity, mis-selling, currency fluctuation, geopolitics, etc. 

Is This Investment Tax Efficient?

Some investments are more tax-efficient than others. For example, PPF is completely tax-exempt. Conversely, a 7% fixed deposits returns 4.9% for someone in the 30% slab. An investment with higher tax-efficiency helps you achieve your objective faster. 

What Commission & Charges Am I Paying?

Don’t be rushed into signing the dotted line. Ask your relationship manager or sales advisor what he’s going to earn from your investment. Ask what charges, commission, penalties etc. apply on this investment, since these will erode your final returns.

Is This My Only Option?

Don’t jump on the first investment option. Go online and compare your options; then shortlist the best one.

How Can I Exit This Investment?

Your money should be available to you when you need it. Before you enter an investment, find out what it takes to exit it. Most investment options have lock-ins, exit loads, penalties, withdrawal limits etc. Understand these to avoid rude surprises.  

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