Optimise return from investments by avoiding cost
Optimising return from investments by avoiding cost
It always pays to invest according to a plan and take your decisions with care. But if you have started noticing the costs associated with investments that eat into the latter, there are the things you should be aware of and the ways you can make sure that you are not losing money unnecessarily.
(Content courtesy: Centre for Investment Education and Learning ; Contributions by Sunita Abraham, Girija Gadre and Arti Bhargava)
Make costs an integral part of decision-making
You can make a significant impact on your investment returns by considering the costs as an integral part of decision-making. This is because these reduce the amount you earn from compounding.
Apart from costs like brokerage, which is incurred when you make a direct payment, there are also the ones that are inbuilt in investments, such as mutual fund expenses, and are deducted from your investment value.
The other cost that is likely to be overlooked is the penalty on investments, such as delayed payments or early withdrawals, which may cut into your returns.
High cost fine only if returns are consistently higher
You must not let only the performance of your investments dictate your attitude to costs. What may seem a small charge when the investment returns are good will be a big drain on returns when performance dips.
A high cost can be justified only if the investment is consistently generating much higher returns compared with the low-cost options.
Ensure your portfolio has room for liquidity needs
You can avoid penalties to a large extent by automating the operational aspect of investing and making sure your portfolio has adequate provision for your liquidity needs.
You can also eliminate unwarranted costs by questioning every time you are advised to sell your current investment and put the money in a new one, since the churning will also translate into higher costs.