Money lying idle in a bank account earns a nominal interest. Financial experts advise investors to park their wealth in schemes that offer higher returns. However, too many investment options available in the market may confuse many. One of the basic rules of investing is to start early so that time works in favour, say experts. As a beginner, the most valuable input is appropriate advice and investment guidance. People get their investments wrong just because they get their priorities and approach wrong, they add. (Also read: Five Investment Options That Guarantee Safe Returns)
Here are few key things to remember before you put your savings into a financial product:
Why should you start investing?
The only way to see money grow and work is by investing it, say experts. “Even if you save a good portion of your salary, the value of your money will get eroded with time unless you fail to invest it well,” said Navin Chandani, chief business development officer, BankBazaar. “Depending upon the risk profile and the goals one wish to achieve, he/she must choose from different available avenues of investment.”
Amar Singh, head, advisory, Angel Broking, said, “The earlier you start, the longer you compound your money. This ensures that your money works hard for you.”
(Also read: Investment In Post Office Savings Schemes Fetches Up To 8.7% Return)
How should you start your investments?
Experts also stress that anyone at the start of his or her career should consider having a thoroughly informed financial plan. It is vital that one builds a corpus for both the purposes over time, they add.
According to Mr Chandani, the first step to any investment is understanding how much you earn, how much you spend, and how much you can save. It is important to track the expenses and spending habits. “Make a list of mandatory expenses like rent, commuting, food, etc., and draw up a budget. Try to stick to this budget as much as possible,” he said.
Anil Rego, founder and CEO, Right Horizons, echoed similar views. “Invest what you can afford. Target an amount you can save and ensure regular investment. Buy only what you believe in. Don’t invest because your friend or a family member is doing it. Understand why you want to invest,” he said.
Where should you invest?
There are several investment options available in the market for beginners. However, financial advisors say that the best way to start an investment is through a Systematic Investment Plan (SIP). An SIP allows the investor to capitalise a certain sum of money periodically in a mutual fund (MF) for a specific period.
According to Mr Chandani, one can invest in equity and debt funds via an SIP, depending on the portfolio and risk appetite. “SIP operates similar to a recurring deposit. However, unlike RDs which are debt instruments, SIP returns are linked to mutual funds, and therefore, the market performance,” he said.
“As a beginner, there is a limit to the investing capacity. That is addressed by mutual funds since you can diversify your risk even with small investments,” said Mr Singh of Angel Broking. “Mutual funds offer a wide choice of investments with a small investment. For example, you can start a SIP with as low as Rs. 500 per month and take indirect exposure to equities, indices, government bonds, corporate bonds, gold etc.”