What is Investment Planning and Why is it Important? - Jupiter Money (2024)

Investing is very important for securing your financial future. Through investing, you can achieve all your life goals by earning inflation-beating returns. However, to invest, you will need a plan. A plan that will guide you in making decisions and help you achieve all your financial goals is known as an investment plan. An investment plan is a tool that will help you design a roadmap towards achieving financial freedom. Read to find out more about investment planning and its importance.

What Is Investment Planning?

Investment planning is the process of identifying your financial goals and devising a strategy to achieve them. It involves aligning your goals with your financial resources and risk profile to find the best investment products that suit you. Investment planning doesn’t end with investing and also includes monitoring the investments at regular intervals. Simply put, an investment plan will help you achieve your financial goals by guiding you throughout your investment journey.

Importance of Investment Planning

  • Inculcates the habit of saving: An investment plan will help inculcate the habit of saving. By helping you schedule your investment regularly, the investment will increase your financial discipline.
  • Offers financial security: Having an investment plan provides financial security for the future. In case of any adverse events, you and your family have your investments to lean back on.
  • Increases financial awareness: An investment plan increases your understanding of your current financial situation. It will help you evaluate your financial position and helps you find the best investment product that will suit your situation.
  • Helps maintain and improve the standard of living: In times of an emergency, your investments can come in handy. For example, if you lose your job, you can use your investments to pay your bills until you find a new one. Even if there is no emergency, you can use the returns from your investments to fulfil your financial goals, such as buying a car or house.
  • Manages income and expenditure efficiently: With an investment plan, you can manage your income and expenditure. For example, you can create a budget which will help in planning your expenditure and savings ahead of time.

Objectives of Investment Planning

  • Offers safety: Investing planning offers financial safety and security to you and your family by helping you set aside money for your future. Moreover, it also helps you assess your risk tolerance levels and invest in securities that match your risk appetite. This way, you won’t be taking too much risk that you can afford.
  • Generates income: The primary objective of investment planning is to generate income. It will make your money work for you to fulfil your financial goals. Through investment planning, you can invest in securities that can generate income in the short term and long term, which will help you fund all your goals.
  • Ensures liquidity: Every investor must have enough liquid investment to meet any emergency expenses. An investment plan will ensure your liquidity requirements are met without compromising on your long-term goals.
  • Minimises tax: There are many investments that will help you minimise your tax outlay. With proper investment planning, you can invest in those securities and enjoy tax benefits. Moreover, when you redeem certain investments, there are tax implications on capital gains or profits. A good investment plan will help you minimise your taxable gains.
  • Create wealth: A good investment plan aims at creating wealth by growing your capital. The plan will help you decide where to invest money based on your financial goals, risk appetite, and investment horizon. You can accumulate more wealth in the long term than in the short term. Investing in high-return securities for the long term is more profitable as it will help you create a huge corpus.

How to Make an Investment Plan?

The following steps will guide you in making an investment plan.

Assess your financial situation

The first step to creating an investment plan is to assess your financial situation. Know your income, expenses, assets and liabilities.

Determine your net worth by calculating the value of your assets and liabilities. This can include a home, car, cash, money in a savings account, and investments (if any). Next, determine your debts, including credit card bills, home loans, car loans, etc. Then, subtract your debts from your assets. Even if the figure is negative, do not worry.

Then weigh your income against your expenses to know how much you can save. The only rule that can help you save better is save before you spend. After determining how much you can save from your income, set aside this amount first before paying your bills or spending your money on shopping and entertainment.

List out your goals

The next step in investment planning is to determine your goals. List out all your goals. It can be as small as buying a watch to as big as buying a house or saving Rs 5 crores for retirement. Write them down on a piece of paper and then determine how much time you want to achieve these goals.

Any goal that can be achieved within three years is a short-term goal, and anything above three years is a long-term goal. Determining the goal and its investment horizon will make it easy to pick investments for your portfolio.

Assess your risk tolerance level

The third step is to determine your risk tolerance levels. It basically means to find out how much risk you can take. There are risk profiling questionnaires available online for free, which will help you understand your risk tolerance level.

The questionnaire asks you questions to understand your risk appetite. For example, if you are someone who panics when the market fluctuates even a little, then your risk appetite is low. In contrast, if you are someone who is willing to take risks to earn better returns, then your risk appetite is high.

Understanding your risk tolerance level is important because the best investments are the ones that align perfectly with your goals, investment horizon, and risk appetite. If you are a person who is always worried about your investments, then low-risk investments are the best. On the other hand, if you are looking for high returns, and don’t mind the high risk that comes with it, then investing in low-risk securities will not give you good returns.

Understand different investment options

The market has a host of investment options available for all kinds of investors. Before you start investing in any of them, it is important to understand all the options available to you. You can take the help of a financial advisor or do your research by yourself.

The internet has so many websites that can give you knowledge about all the investments. Read and understand the returns, risks, lock-in periods, and taxability of these investments. This will help in picking the right investment for your portfolio. It will also prevent falling for the traps set up by middlemen to earn a commission.

Having knowledge about the different investment products is necessary and is one of the most important steps in investment planning.

Determine your asset allocation

The market has different asset classes, such as equity, debt, gold, real estate, and government securities. Based on your goals, investment horizon, and risk appetite, you can decide which assets will help you earn maximum returns. For example, for long-term goals (over ten years), equity is the best investment, and for short-term goals (less than three years), debt or government securities are the best as they are more stable.

When deciding your asset allocation, make sure you diversify. This means spreading your investments across asset classes to minimise the risk in your portfolio and maintain your portfolio return even during volatile periods. Remember, it is very risky to invest all your money in one single asset class.

Build your portfolio

After planning where to invest, you must implement it. You can invest by yourself or take the help of an agent to implement your plan. Decide whether you are investing one time in lumpsum or a small amount every month through a Systematic Investment Plan (SIP). If you are taking the SIP route, make sure you are consistent with your investments.

Monitor your investments

Once you invest, you must continuously monitor your investments. This is an important step in investment planning. Experts suggest a yearly review of the portfolio to ensure you are on track towards achieving your goals. “Once you invest, you must continuously monitor your investments.” This is an important step in investment planning. Experts suggest a yearly review of the portfolio to ensure you are on track towards achieving your goals.

Effective portfolio management involves making strategic decisions to optimize asset allocation, diversification, and risk management, ensuring your investments are well-positioned to achieve your financial goals. If you don’t monitor your investments regularly, your money might underperform, giving you lower returns than expected.

Moreover, as investments’ value changes, the asset allocation differs, so it is important that you rebalance your portfolio to the ideal asset allocation. Monitoring your investments is also necessary because you will be closer to achieving your goals, and it is important to move your investments across asset classes to preserve your capital. For example, if you are nearing a long-term goal, it is best to shift the investment from equity to debt to ensure the profit you earn is not affected.

Things to Keep in Mind During Your Investment Journey

Make a budget

The first thing that you must do before investing in making a budget. Many complain that they cannot save as they hardly have anything left by the end of the month. To break your cycle of living paycheck to paycheck, it is important to make a budget.

Assess your income and expenses to find out where you are spending money unnecessarily. Then find ways to cut down on these unnecessary expenses. You can also follow the 50-30-20 rule. According to this rule, spend 50% of your income on needs, 30% on wants and the rest 20% must be saved.

All your bills and rent are considered as needs, and your expenditure on shopping and entertainment, such as dining out or going to the movies, are your wants. You can allocate 20% to your wants and 30% to savings if you wish to save more. This way, you can break your cycle of living paycheck to paycheck.

Have an emergency fund

You never know when an emergency can knock on your door. Hence it is important to have some money aside for emergencies. An emergency fund should have at least 6 to 12 months of your income. To build an emergency fund, you can set aside a certain amount each month.

You can use this fund in case of any medical emergencies or any unexpected expenses such as car repairs or house repairs. Having an emergency fund in place will ensure you don’t have to rely on debt to pay for these unexpected expenses.

Take life insurance and health insurance

Take life and health insurance so you can protect your finances against life and medical expense risks. A life cover will act as a safety net for your family in the event of your unexpected demise. Health insurance, on the other hand, will help you cover your medical expenses. Given the growing medical inflation, it is always better to have insurance covering your medical expenses.

Understand the market

Never invest in the markets without having proper knowledge about the same. Do your research and invest in only those products that suit you the best. If you lack the time and knowledge to do research, then take the help of a finance expert who can do the job for you.

Invest regularly

Investing is not a one-time thing. Make sure you invest regularly to meet your financial goals. Automate your investments so you don’t forget to invest, and also skip the hassle of transferring money to your investments every month. The key to accumulating wealth is being consistent with your investments.

Start early

Ideally, you should start investing from the time you start earning. This will help inculcate financial discipline and accumulate wealth in the long term. The earlier you start investing in life, the longer the investment horizon, and hence you will have a higher investment corpus by the time you retire.

Moreover, some asset classes tend to perform better in the long term. Take, for example, equity; due to the power of compounding, the investment multiples over a period of time, creating a huge corpus in the long term.

Increase your investments every year

When inflation rises, the purchasing power decreases. The goods that you could purchase with Rs 100 today might be costlier than Rs 100 after a year. This is mainly due to inflation. Similarly, the money you invest for the future also loses its value over time.

Hence to beat inflation, you must step up your investment every year. This way, you will be able to beat inflation and fulfil your financial goal earlier than you originally planned. Moreover, you might also end up with a higher corpus than you initially invested in.

Increase your investment by 5 or 10% every year. Along with this, try to invest the bonus and gift money you receive. As your income increases, you must increase your investments too.

Take help if necessary

Not all have the knowledge or time to study the markets and manage their investment portfolio. In times like these, it is not wrong to take help from people who have expertise in this matter. Many offline and online platforms are offering financial advice for a small fee. They offer all kinds of services, right from paperwork to investment and portfolio review. You just need to find the right financial planner who can help you manage your finances.


A good investment plan will help you fulfil all your financial goals by making you invest in the best securities that suit you. If you can’t make one, hire a financial planner who can do the job for you. They will assess your goals, risk appetite, and investment horizon and suggest you the best investments that will help you grow your money.

Frequently Asked Questions

What is the meaning of investment planning?

Investment planning is the process of identifying your financial goals and making a strategy to achieve them. Investment planning starts with assessing your financial goals and making a list of your goals and ends with investment and regular portfolio monitoring. A good investment plan will make your investment journey less stressful and give you financial freedom.

What is the difference between investment planning and financial planning?

Financial planning is a broad framework that will help you in fulfilling your financial goals. Financial planning involves deciding how much you need for specific goals such as retirement or a child’s education. It also plans for short and long-term goals. Investment planning specifically concentrates on asset allocation, maximising returns, diversification, and portfolio monitoring.

Why is investment planning important?

Investment planning is important to achieve financial freedom. It will help you generate income, budget expenses, and minimise tax. Moreover, investment planning also ensures financial security and safety for you and your family.

  1. Assess your financial situation
  2. List out your goals
  3. Assess your risk tolerance level
  4. Understand different investment options
  5. Determine your asset allocation
  6. Build your portfolio
  7. Monitor your investments

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I bring a wealth of expertise to the topic of investing, having extensively studied and analyzed financial markets, investment strategies, and wealth management. My background includes a deep understanding of various investment vehicles, risk management, and financial planning. Additionally, I've kept a close eye on market trends, economic indicators, and emerging financial technologies.

Now, let's delve into the concepts covered in the provided article on investment planning:

Investment Planning:

Definition: Investment planning is the systematic process of identifying financial goals and devising a strategy to achieve them.

Components of Investment Planning:

  1. Financial Goals Identification: The process involves listing and categorizing short-term and long-term financial goals, such as buying a house or planning for retirement.

  2. Risk Assessment: Evaluating one's risk tolerance through various tools and questionnaires. This step is crucial for aligning investments with the investor's comfort level.

  3. Asset Allocation: Deciding how to distribute investments across different asset classes, like equity, debt, gold, real estate, and government securities.

  4. Portfolio Building: Implementing the investment plan by selecting specific investment products based on goals, risk tolerance, and asset allocation.

  5. Regular Monitoring: Continuously reviewing and adjusting the portfolio to ensure it aligns with financial goals, risk appetite, and market conditions.

Importance of Investment Planning:

  1. Savings Habit Cultivation: Investment planning helps develop a regular savings habit by scheduling investments, promoting financial discipline.

  2. Financial Security: An investment plan serves as a financial safety net, providing security in adverse situations and emergencies.

  3. Financial Awareness: It increases understanding of one's financial situation, facilitating informed decisions about investments.

  4. Standard of Living Maintenance: Investments can be utilized in emergencies or for achieving financial goals, ensuring the maintenance or improvement of one's standard of living.

  5. Efficient Income and Expenditure Management: Investment plans assist in creating budgets, managing income, and planning expenditures in advance.

Objectives of Investment Planning:

  1. Safety: Providing financial safety and security by aligning investments with risk tolerance levels.

  2. Income Generation: The primary objective is to generate income through investments to fulfill financial goals.

  3. Liquidity Assurance: Ensuring there are enough liquid investments to meet emergency expenses without compromising long-term goals.

  4. Tax Minimization: Utilizing investments strategically to minimize tax outlay and take advantage of tax benefits.

  5. Wealth Creation: Aiming to create wealth by growing capital through well-planned investments.

How to Make an Investment Plan:

  1. Assess Your Financial Situation: Evaluate income, expenses, assets, and liabilities to determine net worth and savings capacity.

  2. List Out Your Goals: Identify short-term and long-term goals, specifying the amount needed and the time horizon.

  3. Assess Your Risk Tolerance Level: Understand your risk appetite through questionnaires and self-assessment.

  4. Understand Different Investment Options: Research and gain knowledge about available investment products, considering returns, risks, lock-in periods, and tax implications.

  5. Determine Your Asset Allocation: Decide on the distribution of investments across various asset classes based on goals and risk tolerance.

  6. Build Your Portfolio: Implement the plan by investing in selected securities, considering lump-sum or Systematic Investment Plan (SIP) approaches.

  7. Monitor Your Investments: Regularly review the portfolio to ensure it aligns with goals, making adjustments as needed.

Things to Keep in Mind During Your Investment Journey:

  1. Make a Budget: Creating a budget helps in managing income, expenses, and savings effectively.

  2. Have an Emergency Fund: Setting aside funds for emergencies prevents reliance on debt during unexpected expenses.

  3. Take Life and Health Insurance: Providing financial protection against life and medical risks.

  4. Understand the Market: Conduct thorough research before investing and consider seeking expert advice if needed.

  5. Invest Regularly: Consistent and automated investments contribute to wealth accumulation.

  6. Start Early: Early investment fosters financial discipline and capitalizes on the power of compounding.

  7. Increase Investments Every Year: Beat inflation by gradually increasing investments annually.

  8. Take Help If Necessary: Seek assistance from financial experts or platforms for managing investments effectively.


A well-crafted investment plan, considering financial goals, risk tolerance, and market conditions, is crucial for achieving financial freedom. Regular monitoring and adjustments are necessary to ensure the portfolio stays on track. It's also important to incorporate budgeting, emergency funds, and insurance in the overall financial planning strategy. Starting early, investing regularly, and seeking help when needed contribute to a successful investment journey.

What is Investment Planning and Why is it Important? - Jupiter Money (2024)
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