Smartest investment and life plans in UAE

8 Important Questions to Ask Yourself Before Making an Investment

By PolicyBazaar

Invest smart today for a better tomorrow

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Published: 25 January 2020Last Updated On: 19 January 2021

Smartest investment and life plans in UAE

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There is a wide range of investment plans available in the market that promises to provide high returns. There are several instances where gullible investors are sold investment products by bank employees and brokers or agents that barely make any profit and such type of products don’t come in handy in meeting the financial needs of an investor. That is why, it is quite important to invest your hard-earned money in the right place by doing a thorough research and getting proper information about the investment products.

Here are 8 basic questions that you should always ask yourself before investing your money.

Question 1: Do I know how the investment works?

Just like any other business, banks, financial institutions, and asset management organizations introduce new investment products each year which claims to enable its investors to gain high-interest or returns on their long-term saved money.

In the mid of long and complex explanations using business jargons, some of the investors often do not understand the main purpose of these investment plans and how exactly the company will be generating the returns they claim to offer.

In addition to this, there are some shiny investment options are available in the market whose technicalities could be very difficult for some investors to grasp.

For instance, a few years back cryptocurrencies introduced in the UAE and most of the people fail to understand how it works. In fact, many people duped by brokers or agents promising to multiply their money in this new investment product but unfortunate results were not in favor of many people.

That is why it is very imperative to understand the basis of any investment plan before investing your hard-earned money. If, in case your financial advisor or banker is not assisting you, you can also hire a different person or do some research on your own to make a well-informed decision.

Also, if you are not able to explain how that investment product works to another person, then you should definitely keep your money away from it and invest in other traditional investment plans which are safe.

Question 2: Will this investment plan help me to attain my financial goals?

Always remember that whenever you invest, invest with a specific purpose and not to just make extra money.

For instance, invest your hard-earned money in order to protect your loved one’s future (such as life insurance or term insurance), health insurance (medical claim), long-term financial requirements (house, child’s education, etc). With a clear financial goal, you will be able to make strategic investments easily. Hence, it doesn’t make sense to invest in those investment products which are not meant to fulfill the financial goal you want to cover. Therefore, invest in the right product so that you can achieve your financial goals easily.

Question 3: What are the risks associated with this investment plan?

It is very imperative to under the risk of losing your hard-earned money while investing your money in any investment plan. Even if you may not be assured high profits but ideally you should get a decent return and you should not have to lose the invested amount.

Typically, financial institutions invest your money in different market financial instruments which have an underlying asset linked to it. For instance, equity mutual funds invest money in equities. Well, these equities are further categories as small-cap, large-cap, etc. And remember that, each one of these categories has its associated risks depending on the type of businesses of the organization (who shares are being purchased). By understanding the risks, you can easily anticipate the profits that you will either make or lose from the invested money.

Question 4: How much return can I expect from the investment?

How much money you have set aside in order to make this investment? Can you afford to lose it? How much returns do you expect to attain the desirous amount for your future plans? By asking all these questions to yourself, you will be able to plan your future goals financially.

Question 5: How Long Should I Hold On to The Investment?

If you have invested in a retirement plan, you can hold on to the investment until you turn 60 years of age. Just like that, you should make similar calculations on how long you’re willing to wait or continue making regular payments towards your investment plans in order to receive the amount you have desired of. When you make such calculations in your mind, you can certainly opt for an apt investment vehicle.

Question 6: Is The Investment Registered?

There is an array of scams and hoax schemes reported over the course of years. Fraudsters companies or brokers usually target gullible people who can easily be manipulated based on their relationships or beliefs. The worst thing is that court cases on such fraudsters companies can take several years to be resolved thereby giving you unnecessary mental as well as financial distress. 

That is why it is quite important to know the background of the company as well as their investment schemes before you invest your hard-earned money in any of their investment plans. This will certainly help you to make a well-informed decision.

Question 7: What can I do if in case the investment doesn’t work for me?

What will you do if the investment in which you have invested your hard-earned money does not work? What are your other alternative options if the investment fails? Who can you approach in order to correct the wrongdoing or get your hard-earned money back?

Well, you must understand if the company or financial institution with which you have bought an investment vehicle is answerable. Also, you should have an alternative option that can help you to tackle such situations.

Question 8: What are my exit options?

Before starting an investment, it is very important to know about the lock-in period and the premature withdrawal rules for when due to unforeseen events you’re unable to continue with that scheme.

Usually, investment schemes require the investor to continue for some specific tenor before they can withdraw their money or lose any of their contributions that have been made previously if they decide to not continue with the plan further.

In addition to this, just like mutual funds, you have to know about the exit option for when you’re not satisfied with the returns earned by the fund manager. You must know your options so that you can switch to an investment product and invest in another scheme that can provide you the better returns for your future financial goals.

Bottom Line

Investing is essential for all of us to secure our future financially. So, make sure you ask yourself all the aforementioned questions to make the most of your investment plans.