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Know your investments to yield better returns

business Updated: Sep 23, 2008 21:16 IST

Financial literacy has been receiving a lot of attention. This is because many people who are otherwise well qualified in their chosen profession are at a loss when it comes to making the right decisions on their finances. It is essential that a person is able to understand how best they can handle their finances. This requires financial literacy.

Know the basics
One of the first steps to achieving financial literacy is to get hang of the basics. This will help the person to make the right decisions for their investments. Understanding the basics would include learning about the mode of functioning of several asset classes and how investors need to structure their financial position based upon their specific need. For example the basics of the new pension scheme or what are exchange-traded funds would help the investor.

Select the right path
An individual can achieve his or her financial goals in many ways. However, the myriad choices that are available make it difficult for the investor to pick the right option. Thus an investor must know what routes are available and how he or she would choose the right route. For example an investor must know the difference between term policies and unit linked policies and how he or she would choose between them or how to decide whether a fixed deposit or a fixed maturity plan is a better investment. The right choice will ensure that the investor uses the money at an optimum level. However, this is possible only when there is adequate financial literacy on part of the investor.

More understanding
All this boils down to nothing but the fact that a person needs to understand more about the developments around him or her and how they will tackle the position. This involves knowing the mode of operation and the difference between two financial tools. Financial literacy is different from being able to read and write and have some degree. It is the ability to understand the financial aspect and then make the right decision. Once this is done then the investment process gets easier.