How to improve investment returns

K. ARAVIND

Investment does not have to be successful just because it is earned and invested in those areas where it is most effective. There are a few other things to keep in mind to maximise investment returns.

Investors need to be careful to reap the benefits of compound interest. For example, if you have fixed deposit in a bank, you can opt for an interest refinancing method. When you do this, you get interest on the capital invested and the interest earned on it. This is where the benefits of compound interest come into play. For example, suppose you invest Rs.1 lakh in a bank fixed deposit scheme with 6 per cent interest. If you opt for a quarterly interest bearing scheme, the interest payable over five years will be Rs.30,000. At the same time, if you opt for an interest reinvestment scheme, you will get Rs.34,685. The additional interest you get is Rs.4685. The interest rate is 15 per cent higher than that received from the scheme which accepts interest on a quarterly basis. This is the magic of compound interest.

If you do not have to utilise the interest earned on the investment to meet any of your needs, it is a good idea to reinvest it. Or you have to be careful to invest this interest somewhere else effectively.
Similarly, when investing in equity mutual funds, care must be taken to ensure that the choice of funds is more effective. For example, Growth plans outperform dividends of equity funds in the long run. It is important to understand this difference and choose growth plans.

Another thing is to keep a bank account specifically for deposits. This will give you a clear idea of the investment and the benefits. This account should be considered as a channel for investing in investment avenues such as fixed deposits and mutual funds. This method can be used to assess the benefits such as dividends from shares credited to the account and interest from bank fixed deposits. Tracking this bank account will help you to repurchase benefits such as dividends and avoid using them for expenses.

Reviewing the portfolio will help ensure that the return on investment is adequate. Care should be taken to check whether the investment is growing in a way that helps to achieve the goals.

Care must be taken to protect the gain in line with the objectives. For example, if the return on equity investment is better than expected within a year, care should be taken not to give up the gain by booking a partial profit.