Investing for Beginners

There are generally two ways of saving money. One is putting your money to rest, and the other is putting your money to work.

Why Should You Invest? 

Let us assume that you are 30 and currently working. You earn ₹30,000 per month, yet you manage to save ₹5000 every month. When you retire at 70, you would have saved ₹24,00,000. 

Now let us take a look at the other case. If you had invested your savings in the stock market, you would have gained a multiplier of the money you saved when you hadn’t invested. Suppose the stock market gives a return of 15% per annum. You would have saved nearly ₹16,00,00,000 by the time you retire!

The above example is why you should start investing. By putting your money to work, your savings have the power to increase exponentially. 

When is the Right Age to Invest?

You can begin investing as soon as you attain the age of 18. The first step is to apply for a PAN Card. Then open a bank account and a Demat account. That’s it. You’re good to go!

What are the Methods of Investing? 

There are four ways of investing in the stock market. They are stocks/equity, mutual funds, bonds, and derivatives. There are also other alternatives investments include real estate and commodities. Real estate involves buying property and selling it later. It poses a moderate risk but requires a high initial investment. Commodities such as gold, silver and oil are low-risk investments that give substantial returns.

Which is the Best for Beginners?

High risk equal high returns. Although equity has the potential for the highest amount of returns, it can go wrong if you do not have adequate knowledge. For a beginner with zero knowledge about the stock market, mutual funds are the perfect pitch. 

What is a Mutual Fund?

A Mutual Fund is a trust that pools money from all of its investors who share a common goal. When you do not possess the time or skills to invest your money, you can give your money to an Asset Management Company (AMC) to manage your investments on your behalf. The AMC hires financial experts to invest your money in different types of securities. 

What are the Advantages of Mutual Funds?

  • Outsourcing: Not everyone can be an expert in financial markets. Market fluctuations are highly unpredictable. 
  • The highly qualified fund managers conduct intensive research to ensure that you get the maximum benefits. By outsourcing your investments to experienced professionals, you reap profits at a very nominal fee. 
  • Less risk: No matter how small your investment is, a mutual fund invests that in many different classes such as fixed deposits, bonds, equities, debentures, etc. A diversified portfolio reduces the risk of loss from market fluctuations. 
  • Shared losses: When the market does not go your way, there are thousands of other investors around the world to share your losses. Both profits and losses are shared among investors. 
  • Flexibility: Any investor, whether small or large, can invest in mutual funds. You are entitled to decide your investment strategies and time durations too. 

Mutual Funds are the most suitable for beginners as it requires no prior knowledge about the market. Not everyone can be an expert in financial markets. Though the benefits outweigh the limitations of mutual funds, you should be aware of them as well. Be wary about the size of the AMC and the expertise of its fund managers before you invest.