Financial security is one of the most important things which people keep looking for in their life. Achieving this is a big thing in itself and people do several things in terms to become financially secure, among which saving and investment are the most common one. These are the best known ways to grow money, but debts can be a big obstacle. Debts can be of many types, such as, a mortgage, line of credit, credit card, student loan, vehicle loans and even personal and home loans. People generally think that it’s not a good idea to invest money while in debt. A misconception which persists across all age groups is- one should first clear all the debts, and only then start thinking about investment. But here an important aspect to think about is- some debts such as home loan, education loan and some personal loans have longer repayment tenures. So is it a good idea to not invest during that duration?
It is a fact that debt elimination, particularly of something such as a loan that will take long-term capital. Loan repayments always sum up to be more than the actual amount borrowed as we do need to pay a considerable sum of money as interest to the lender. The interest applicable is always compound interest hence it sums up to be a significant amount by the time loan has been fully repaid. This is something which no borrower can escape. But it also leads to loss of money during that tenure as interest. There are investment instruments in which the money invested grows at a compound rate. Hence smaller investments made during the loan repayment tenure can help one to minimize or overcome the losses incurred during this period. Being debt burdened also implies that one might face continued shortage of money every month. One can start investment even with a small amount, which can pay you off more in future. With investment you get one more additional benefit, i.e. you can invest in small chunks not in bulk. This will not affect your loan repayments too.
Investments You can Do Even If You are in Debt
Investment in Mutual Funds (SIP)
Investment with Mutual Funds is a good option to grow your money. Here one can decide the amount investment scheme with themselves. Mutual Funds are also subject to risk and it is suggested to read the terms and condition carefully before choosing one. However this is better than other investments like fixed and recurring deposits.
SIP is one of the best investment plan with Mutual Funds where one can start investment with a low amount of INR 500 monthly. Such a small amount will not affect your budget including the repayments against debt and it can definitely provide much more than the invested amount once the tenure is completed. The best thing about SIP is the interest rate which they provide. A small amount of INR 1000 when invested monthly in SIP can grow up to INR 15,00,000 when invested for 10 years. Hence it is always a wise decision to invest through SIP.
Investment in Insurances such as Life and Health
Having an insurance is always a good thing. Apart from providing returns it provides a cover to you and your family as well. Life is totally unpredictable and full of uncertainties. You can’t say anything about your life. Hence it is always better to be protected. Having a LIC covers your life and helps in maintaining the requirements of your loved ones even after you are gone. There are so many life insurance plans depending upon the premiums and the covers. Choose one according to your needs and requirements.
Same applies to health insurances, it provides a cover regarding your health. There are certain health issues and diseases whose treatment requires lots of money which can be a lot for most of us. Having a health insurance provides you cover in these situations.
Let’s understand this with the help of example- Naresh is employed in a private company and gets a decent amount of salary. He thought investing in policies will be a waste as he was in some debt already regarding his personal loan which he took at the time of his marriage. Suddenly his wife fell ill and was diagnosed with cancer. In the treatment he spent INR 1,000,000. Which he got through borrowing from friends, family and bank. His wife recover after some time but he is in a debt of INR 1,300,000. If he would have taken a health insurance, the situation would have been much better.
Investment in Gold
Old is Gold this is a common proverb, but the meaning is quite clear. This proverb conveys that old things have more value and the value is comparable to gold price.
Gold is a precious metal which is everlasting and its price keeps increasing. Women love gold and want to have more and more of it. There are certain occasions too where we need to purchase gold such as on Dhanteras and Akshaya Tritiya. These are the best time to buy gold. Buying gold on such occasions double up both as a ritual and an investment. Its value will never decrease and it can help you in your tough time too as options such as gold loans are available now a days. However festivities witness increased gold rates, hence it is advisable to buy gold during the off season when the demand is low and so are the prices.
The biggest decision you have to take regarding investment being in debt is your tolerance for risk. Look for the risks involved in your investment wisely, if you are investing for long term say more than five years then you can stand to take a little risk with mutual funds, ETFs but being in debt you can’t afford to take big risks. If your investment is a short term investment then you can look for private lender or P2P landing where you can lend to anyone with the involvement of any financial organisation. Choose your investment plan wisely, we can only guide you! Rest depends on you!!