If you are someone who wants to get into investing but are not quite sure how to go about it, this is your cue. Investment, if known properly with all the basics understood, can work as a lighthouse, guiding you to reach your financial goals. To make the right investment decisions you should be clear about the basics like any other subject.
Investments are the act of using money to acquire a particular asset for future gains. It is a process of buying assets to generate returns. The generated return can be in the form of 'regular income’ or ‘capital appreciation’. Now the question arises, why should we invest? Investment helps yield higher returns than just keeping the money idle in a locker or in a bank account where it would help gain lower returns.
It is advantageous if you start investing at a young age as it will help you utilize a long term investment horizon to the fullest. Investing at a young age is beneficial for another reason. In case anything goes wrong, you will still have plenty of time on your hands to recover, make amends and earn good profits thereafter. Hence, starting to invest early is key to making the most of the investment opportunities.
Types of Investments in India
There are multiple options, depending on your goals or financial needs, to choose from if you want to invest your money. A lot of new schemes are now available that help yield greater returns with better investment strategy, lesser risk and are highly compatible for a consumer. So, if you are new to investing, you can choose what works best for you.
Stocks is the most famous investment tool in India that represents part ownership in a company. If you buy stocks of a particular company, you start earning with it as you get the title of a shareholder for the company.
Mutual funds are broadly classified into stock funds, bonds, money market funds and hybrid funds. It is an investment where various people put the money and then the schemes invest in securities such as stocks, bonds, gold, and short term debt. Fixed deposits, on the other hand, give a fixed return till the maturity period.
Fixed deposits are offered by various banks for different periods of time and rate of interest. They are the best option for people who want to play it safe. Recurring investment is like a systematic investment plan for fixed deposits. Here you can invest a minimum amount each month for a specific period of time. Other popular investment schemes include public provident fund, national pension scheme, employment provident fund, real estate and e-gold.
Process of Investing Successfully
1. Start with doing accurate research
Reading books about finance and investments can help you gain a deeper understanding about it and will lead you to better decision making while investing your money. Reading will also help make your investment decisions more substantial. You will be able to figure out which scheme will give you more returns at lower risk. Always remember that every successful investor has faced failure or losses at some point in their investment journey but that is a part of learning and this is the reason why starting to invest early is a better decision.
2. Eliminate Debts
If there is any debt that you are yet to pay, it is advisable that you first finish all your debts and then get on the investment journey. If you do not have any debt or have finished all the debts, then refrain from taking any further loans as they take loads of money from one’s earnings.
3. Pay Yourself First
Robert Kiyosaki, in his book ‘Wisdom from Rich Dad, Poor Dad’ described a concept, 'pay yourself first'. This means investing or spending money on yourself that can make you rich in the long run. You can do this by saving a portion of your earnings and then investing that money in various schemes that best suit your needs. This can help you invest more effectively and along with this, you would also need to cut down on your expenses so that you can invest a sizable portion of your earnings.
4. Investment Diversification
Do not invest all your money or savings in the same place or the same investment plan. With time, learn to invest in multiple streams to lower your risk of losing money. Every investment plan has a risk of failure, so if you invest your money in different investment schemes, you will not lose all your savings even if one of your investments faces a loss.
5. Overcome Mental Blocks
Thoughts like 'I cannot afford investing', 'I will think about it some other day' or 'equity is risky' must be dropped before boarding the train of investment. There is always a way round if you cannot afford to invest huge amounts of money, start slow, invest even the smallest amount if you can. People think that they would start investing some other day or research about it one day, but that day never comes, so it is better to do it right away. Talk to your friends or relatives who are into investing, learn from their experience, do your research now and get into investing.
It is not easy for beginners to start investing but you need to start somewhere. Start with identifying your profile (your earnings, spending, savings, etc.) and look for an investment plan that suits you the best. Even if you decide on one type of investment, it has thousands of sub-types to choose from. Start with 100Rs, but start investing as early as you can.