Before making investment We should know the nature of the investment product and its liquidity.Not all products have enough liquidity(Allows you to withdraw in emergencies).
So before making investment you should consider “Liquidity” risk. If that investment product fails to repay your corpus you will be deeply depressed and fall into financial crises.
You should select “Safer” products for short term needs and it canbe withdrawn at any point of time. At the same time, you should plan for “long term” for life goals. But before making long term investments ensure that you don’t need that money in the short term.
Investments are to be categorised into short term and long term investments. Even though Your short term investments don’t fetch high returns, that money should be used only for short term needs.
You should never touch your long term investments until your goal is reached! Even though there is an emergency, you should stick to your long term products.
In case there is financial crises, you should be prepared for this by creating 3-6months of your expenses as “Emergency Fund”. This fund will look after your expenses during emergencies.
So from here on-wards, know the investment objective before investment. For short term needs invest in safer products which can easily withdrawable. At the same time notice that your long term investments requires time so they can’t be redeemable. Instead create Emergency Corpus for your needs as long term investments are illiquid in nature. Example- PPF, NPS- They are long term products which can’t be withdrawn and have definite lock-in period.
Before making an investment, Consider whether your investment product is liquid or not!