How To Start Investing? A Complete Guide
Earning money is tough.
Investing it wisely makes you rich.
So many options to choose from.
Here are various avenues for long-term investing with brief overviews on each of them.
Get a better idea on options available, so that you can make the best choices for your financial future.
Getting Ready For Investment
In order to start investing, its essential to have a considerable, disposable income, on a consistent basis.
This doesn’t mean you can’t start investing if you’re living pay check to pay check, it means just means that you will have to start living below your means to save enough for investing.
Focus On Your Emergency Fund
Emergency funds can be life-savers when storms hit. They are especially critical in a scenario like the current one.
You should reserve at least 3-6 months’ worth of your expenses to meet any unexpected incidents like job loss. The present economic uncertainty demands a stronger emergency fund.
Cut Down On Expenses
Most of us are going through salary cuts or dropping income. Cutting your expenses can help you save for the future and stay stress-free in these tough times.
You can list your expenses and manage them based on priorities to avoid unnecessary spending. A penny saved is after all a penny earned!
Living below your means is absolutely essential to invest and reach your long-term financial goals, especially if you are barely making ends.
Pay Attention To Your Debts
Recent surveys say that millions of jobs are at risk in this pandemic. In such a scenario, it is greatly desirable that you prepare yourself for a downturn by getting rid of debts.
Try to get rid of high-interest debts. You should also avoid attracting new debts for cash flow issues. Go for low-interest loans against security. Earn a little extra to eliminate any outstanding bills or payments.
Revise Your Risk Management Ideas
The pandemic has tested the risk-taking potential of investors. It has changed the way investors perceived risks.
Our overall financial situation has gone weaker with dropping confidence. Before you can put your money into anything, analyse the level of risk associated with it, and compare it with other options.
Make An Investment Plan
The key to making profits from your investment is to plan long term. Your current investment portfolio might have gone down in value but you should take steps to deal with the situation. Consider diversifying your portfolio and grab investment opportunities from the falling market.
Control Your Emotions
In tough times, it is quite important to stay calm and confident. Changing prices can often make investors panic and they end up making the wrong decisions. Try to avoid any feelings of stress and insecurity.
Diversify Your Portfolio
There is nothing better than diversification that helps you manage risks. This type of investment makes sure your losses are covered by other profits.
This means it is better to invest in different sectors and companies than focusing the money on a single investment.
When you borrow funds to execute your investment plans, your risks increase. When the markets are declining, it is not a good idea to borrow.
You are likely to lose your investment and bear the cost of interest payments to the broker. You can consider cutting down your expenses and earning extra to handle your finances better. It is best to invest the money you can afford to lose.
If you start investing early in your life, you can fully utilize the benefit of long-term investment.
You can use an aggressive approach to your strategies and always have enough time to recover from any mishaps. Starting early is, therefore, key to making the most of the investment opportunities available.
Know Your options
You might not believe that there are over 100 investment options available in India. You should try to learn about these alternatives to be able to find out which ones are the most profitable.
People generally invest in mutual funds, stocks, real estate and gold. But there are so many other ways to invest money. Knowing your options allows you to diversify your portfolio to manage risks.
Investing In Stock Markets
Investing in stocks has always remained an exciting option for those who want huge returns on their money. However, they have the highest fear associated with them as the risks are higher. The present market condition in India makes this much clear to understand.
You might be hearing daily news of fall in the stock market and are likely to be hesitant to enter this mode of investment. But ask an investor and he will tell you that it is the best time to enter the stock market. Lower prices allow entering with a small investment and you are entitled to a higher profit opportunity.
History has proved that stock investments in these hard times yield profits. Though the stocks can take some time to recover, the market ultimately comes back to its position in the coming months or years. New investors can find it daunting but these tips should help you get started.
Do Some Research
When it comes to the stock market, every individual has a different opinion because their experiences vary. The key is to do your own research before jumping in. You can start by looking at the top 100 stocks and the NIFTY50 shares. Get information from the newspaper or the internet and decide what sector you should invest your money in.
Follow The Trends
If you take a look at the news, you will find different reports on the overall stock market. However, when you are investing in individual companies, you have to understand their trends and try to find the reasons for their price movement. Stay on top of the market trends to be able to plan your investment.
Invest At The Right Time
Every investor goes through the struggle of finding the right time for stock investment. While there is a lot of debate on this topic, the reality is that there is one stock or the other at every time you can consider investing in.
So, the right time is based on your own risk-taking abilities and expected returns. The time you stay in the market is also important. Holding the investment for a longer period is often lucrative.
The Exit Strategy Matters
Though the stock market is known to give high returns, your profit ultimately depends on when you exit.
You will always see a lower buying price and a higher profit but you should consider exiting when you feel that you have got expected returns. Exit a stock when it is the right time for you and overcome the regret and temptation of waiting for a higher price.
You might be hearing from people that the market is crashing or going low, but remember that it is the time to enter. Begin researching and find the stocks that best suit your needs. It’s high time to start investing!
Investing in Mutual Funds
If you have ever heard about mutual funds, you know that they have many benefits. This is why they are so popular among investors. Here are some of the most important advantages they offer.
- You can start with a small amount
- Start automated monthly investments
- Diversify the investment across stocks and instruments
- No need to open a DMAT account
How Can You Start Investing In Mutual Funds?
The first requirement for investing in mutual funds is to be ‘KYC compliant’ that you can achieve by submitting required documents for verification of identity. You can either approach the mutual fund house or brokers to start investing in mutual funds. The next step is to choose from debt or equity mutual funds.
If you are a new investor, you can put your money in equity-related funds which put as much as 80 percent in shares. They are risky but they give great returns in the long run. Young investors can go for this as they have the ability to take risks.
Elders can go for debt-related mutual funds because they put the money in safer instruments like government schemes. Then, there is something called balanced funds that put some amount in debt and the remaining in equity.
Types of Returns You Get From Mutual Funds
A mutual fund entitles you to two types of returns. The first is capital appreciation while the other is dividends. So, when you invest, you can choose from a growth plan or a dividend plan.
For a growth plan, the returns are not distributed but added back. On the other hand, a dividend plan gives away the profits in the form of dividends and the plan doesn’t grow.
The dividends earned from mutual funds are tax-free in India. Investors should learn about the tax liabilities associated with mutual funds to be able to save tax and maximize earnings.
You also have tax saving mutual funds that lock in your money for three years and invest it in equity funds to give you tax-free returns.
How To Invest In Real Estate In India?
Property prices continue to rise in India because of the growing population and buying power. In the last five years, the prices of property have gone up by 5 per cent per year. What makes property investment so popular is its ability to generate short term income in the form of monthly rents.
Rentals keep increasing with inflation and the demand for property also keeps rising. Such an effect makes the real estate sector so capable of generating returns, despite the global economic condition.
Consider These Points Before Investing In Real Estate
Here are some of the thing’s beginners should keep in mind before putting their hard-earned money into property.
Research The Property – Jump into a purchase only after you have done enough research. Look for the history of the builder, amenities offered, the area of the property and materials used in construction. Such things ultimately affect your returns on investment.
Check Market Rates – Investors can find the valuation of the property through different sources and make sure they are not paying higher than what the property deserves. This will help you justify the returns you expect in the future from your investment.
Consider Risks – Though real estate investments are safer as compared to other forms, they are not totally risk-free. You can often fall into disputes and legal issues so make sure you get a clear property with the minimum hassle involved.
Are There Other Ways To Invest In Real Estate?
There are investors who stay away from physical property investment. Here are some ways you can do that too.
REITs – The next best thing after physical purchase, REITs are a great way to invest in the real estate sector.
There is very little potential for this option but as the market matures in the country, it will certainly be a great alternative for investors.
Mutual Funds – There is a real estate fund in India which comes under ‘Fund of Funds’. There are no ETFs in the country.
Shares – If you want to invest in real estate, you can buy shares of companies associated with this sector.
You can refer to the S&P BSE Realty Index to find out the best companies to invest in. Buy the shares at discounted prices to make more profits.
How To Invest In Commodities
You might have sometimes thought about investing in gold to earn a profit when the prices rise. This is the base of commodities trading.
It is, in fact, one of the best ways to invest during downturns. It is also a good way to diversify the portfolio of investors. You can easily mitigate risks from other investments.
What Are The Types of Commodities?
You can find different types of commodities available in the market for trading.
Hard commodities include energy products like gasoline, crude oil and natural gas. Precious metals like silver, gold and platinum also fall under this category. Then, there are soft commodities further divided into Agriculture and Livestock.
People often get involved in exchanges of produce like rice, wheat, soybean, corn, salt, etc. There is also trading of commodities like cattle, pork, live cattle and more.
Some of the most popular commodities traded in the market on exchanges in India include silver and crude oil.
Gold is one of the best options you can consider for commodity trading during a recession because prices often increase during these times. Crude oil is a great option too because it is one of the most significant sources of energy for different industries.
How To Get Started With Commodity Trading?
You can invest in commodities in India through commodity trading exchanges. The top commodity trading exchanges operating in the country at the moment are:
- NCDEX – National Commodity and Derivatives Exchange Ltd.
- MCX – Multi Commodity Exchange of India Ltd.
- ICEX – Indian Commodity Exchange Ltd.
- NMCE – National Multi Commodity Exchange
Of these, NCDEX and MCX are the most popular among traders. You can trade in commodities like energy and precious metals through MCX while NCDEX allows trading in agricultural products. You can trade in diamond through ICEX.
What Options Do You Have For Investing In Commodities?
Let us take a look at some of the most popular ways you can invest in commodities.
Buy Physical Goods
This is the simplest way to invest money in the commodity market. With this method, you physically buy the commodity in a hope that prices will increase and you can make a profit by selling it at a higher price. Some of the best options for physical purchases in India are precious metals.
Invest In Commodity Futures Market
A futures contract is a great way to profit from the commodity market. You enter into a contract that lets you trade a fixed amount of commodity at a future date. Such a form of trading can give you massive returns coming from changing commodity prices.
Commodity Related Stocks
Those who don’t want to take the risks of future trading can buy shares of companies associated with commodities.
Investing in this type of stock will expose you to the benefits of price movements. You can enjoy the gains that come from the increasing prices of these shares.
Exchange-Traded & Mutual Funds
While mutual funds let you start a systematic investment process in stocks related to commodities, ETFs allow investing in futures contracts. ETFs are just like stocks but you can hold them without any risks.
Open an account with the exchange-registered broker and submit the required documents to start trading on these exchanges.
Save Money By Investing In Insurance Plans
Unit Linked Insurance Plans (ULIP) may not sound so easy to you! But these are the life insurance plans that different companies offer.
They serve two purposes – an opportunity to save over a long time and provide a life cover. These insurance plans are classified into different subcategories like an endowment, term, and even retirement plans.
But How They Work?
Regardless of the type of insurance plan you invest in, they guarantee returns. The premium you pay for the plan is invested and the investor can earn returns. Not to forget the fixed assured sum in the event of death! Depending on your risk-taking ability, you can choose to invest in debt or equities.
Those who want to take higher risks can go for equity funds while conservative investors can select debt funds or a combination of the two options.
According to the type of fund, managers manage your investment and put your premium money into the instruments. Your money gets locked for a minimum of five years and the profits and returns are dependent on the market conditions.
What? Tax Benefits Too?
What makes insurance plans so attractive is their tax advantage. A premium paid up to 1,50,000 per year is exempted from tax under Section 80C. Not only this; the returns from the policy are also exempted from income tax under Section 10. ULIPs have a lock-in period of just five years which makes them better than traditional investment options like PPF.
What You Should Know Before Investing In ULIP?
Insurance plans are easy to execute and give you the flexibility of switching between debt and equity at any time without any cost.
Such a facility makes sure you can build a portfolio that matches your risk-return expectation. Here are some more things you should know before investing in insurance plans.
- In case of death, the assured sum is the minimum amount your nominee receives
- The policy term is at least five years
- Partial withdrawals are available only after five years
- Child policies allow withdrawals only after the child is 18 years of age
You can choose from many other investment options that save taxes. You can go with PPF or ELSS (Equity Linked Saving Scheme). However, investing in ULIPs guarantees the highest gains as it offers advantages like tax-saving and the opportunity to earn from market investment returns.
Government Schemes As Investment Opportunities
The Indian government has introduced several investment plans to improve the financial stability of people. Such schemes provide social security to the citizens. They are ideal for investors who want to lock their money for a considerably longer time to save without any risks.
Most Indians go with the Public Provident Fund for long-term investment. This scheme gives an interest rate of about 8 percent per year. You can open your PPF account with as little as 100 rupees and save for 15 years. It is a great option for salaried individuals.
Apart from PPF, you can invest in Voluntary Provident Fund (VPF) and National Savings Certificate (NSC) which work similarly and give you assured returns. Some of the newer government schemes include the Pradhan Mantri Jeevan Jyoti Beema Yojana, National Pension Scheme, and Senior Citizens Saving Scheme.
Those were the basics of getting started with investing.
Some of the ways you can begin saving for your future and achieve strong finances.
Do share with us what you think about this guide to investing.
If you have any questions or suggestions, you can feel free to share it with us in the comments section below.
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