Looking to start investments? Keep these things in mind

For example, Sahil Arora, director, Paisabazaar says, as equities can be very volatile in the short term, investing in fixed income instruments like fixed deposits and debt funds will be more prudent as capital preservation becomes a more important objective than capital appreciation for short term financial goals.

"Similarly, as equities beat fixed income instruments by a wide margin over the long term, investing in equities or equity mutual funds would help achieve long term financial goals with much lower contributions than what is required in case of fixed income instruments," he explains.

Investors should also make a comparative analysis of liquidity, cost and tax treatment of the available investment alternatives before choosing the final one.

For example, investing the entire investible surpluses in investment vehicles with long lock-in periods like Public Provident Fund (PPF) or National Pension System (NPS) may force an investor to avail loans to deal with unforeseen exigencies or unplanned big ticket spends.

"PPF and NPS allow premature withdrawals only for select conditions along with caps on the number and amount of withdrawals. Instead, investing in ELSS would offer more flexibility as they have a lock-in of just three years without any restrictions on redemption thereafter," opines Arora.

As with PPF and NPS, investments in ELSS also qualify for tax deduction under Section 80C.

Similarly, for those in the 20 percent and 30 percent tax slabs, investing in debt funds for investment horizons exceeding 3 years is more tax efficient than investing than fixed deposits.

The capital gains booked on redeeming debt funds after three years is taxed at 20 percent with indexation benefits whereas the interest income of fixed deposits is taxed as per the tax slab of the depositor, according to Arora.

Experts also advocate the need for certain checklist for investments such as having a bank account and finalising the mode of operation.

"Bank account is necessary for investment in financial products. Changing bank accounts frequently can cause a problem as the bank mandate has to be updated if one wants to redeem the investments. Financial instruments are mapped to a bank account," says Abhinav Angirish, founder, Investonline.in.

KYC (Know Your Customer) is also a mandatory process for investing in financial instruments. One must keep identification documents such as PAN number, Aadhaar details, passport copies handy since they are required to be submitted along with the application.

"Generally people skip filling nomination forms at the time of investing. This is crucial as it ensures that in unforeseen circumstances investments can be smoothly transferred to the legal heirs. If there is a change in nomination, one must do so promptly to avoid hassles later on," Angirish suggests.

While making investments it is also necessary to have a clear distinction of responsibility of holders, i.e. whether the account is managed jointly or survivor basis. Besides, a proper record of investments should be maintained to help in smooth management of investment accounts.