In the current sharp rise inflation scenario, and the increase in the cost of living, having some form of savings has become imperative. Many people wish they could save but do not know how to get started. It is never too late to start saving.
Firstly, to start the habit of savings, you need to set a goal and think about what you want to save for, be it a new car, a deposit for a property, an academic qualification or maybe retirement.
Monthly investment plans may be a great way to start saving with a small amount of money while gaining access to the financial markets.
A monthly investment plan is an opportunity to start saving and achieve an objective, with a very affordable amount every month. When investing in a monthly investment plan, you will be able to choose which investment vehicle you wish to invest in, based on your risk profile.
There are funds appropriate for everyone, ranging from those investing in purely fixed-income securities, others investing in equities and funds investing in a mix of both fixed income and equities, either in the local and global markets. Before investing in any particular fund, you should also determine your risk profile.
Age is also an important factor when determining your risk profile and investment objective, the younger you are, the more risk you will be able to tolerate, which in turn should potentially render higher returns in the long term.
There are funds appropriate for every risk profile- Tara Vella
Whether you are a conservative type of investor, or a more aggressive investor, there are funds appropriate for every risk profile. When investing in these funds, you will be purchasing shares and you will also become a shareholder of the fund.
Monthly investment plans are designed around the consumers’ needs; therefore, they offer absolute flexibility. Subject to any minimum investment requirements set out in the terms of the monthly investment plan, you have the option to increase or decrease your monthly contributions. You also have the possibility to stop payments completely or suspend payments for a period of time and resume again whenever you wish, without any penalties.
You can also keep your plan for as long as you require. While one should aim to save for the long term, with a monthly investment plan, you have the possibility to withdraw your capital whenever you want to, without the need to give any advance notice.
One of the main advantages of investing in a monthly investment plan is what we refer to as cost averaging.
While you will be investing the same amount of capital every month, you will be buying shares of the fund at different prices on every purchase.
More shares are bought when prices are low, while fewer shares are bought when prices are high. The cost averaging effect can minimise the risk of substantial losses when the market retreats, since the average unit cost is lower than a lump sum subscription.
Funds are made up of a portfolio of securities, providing diversification benefits within the fund and promotes a less risky methodology of investment than investing directly in investment securities.
Funds are managed by qualified and experienced portfolio managers in the financial sector. Since investment in monthly investment plans are usually processed through a standing order every month, this type of investing instils the habit of disciplined saving, regardless of the market behaviour.
The key to saving is to spend what you have left after investing and not invest what you have left after spending.
Tara Vella is a manager at BOV Asset Management Limited.
The writer and the company have obtained the information contained in this document from sources they believe to be reliable, but they have not independently verified the information contained herein and therefore its accuracy cannot be guaranteed. The writer and the company make no guarantees, representations or warranties and accept no responsibility or liability as to the accuracy or completeness of the information contained in this document.
They have no obligation to update, modify or amend this article or to otherwise notify a reader thereof if any matter stated therein, or any opinion, projection, forecast or estimate set for the herein changes or subsequently becomes inaccurate. If you invest in this product, you may lose some or all of the money you invest. The value of the investment may go down as well as up. BOV Asset Management Limited is licensed to conduct investment services in Malta under the Investment Services Act by the Malta Financial Services Authority.