Investment Guide For Beginners to Become Expert Investors

Under the current circumstances, we can all witness the influence of inflation in almost every sector. To cope up with that simple earning and saving money is not sufficient. You need the proper circulation of the money through relevant channels and avenues for better returns which will secure and strengthen your overall wealth corpus in the long run with a strong financial footing.

However, if you are new in the investment sector, then you must carefully understand the primary basics of the investment practices for optimum benefits. It is no wonder that with a plethora of investment instruments currently available in the market, selecting the right scheme is in itself a challenge. This article will guide you in your journey to gaining a solid financial footing.

Procedures of Successful Investment

It is our general tendency to concentrate too much on the returns even before we begin investing. But you need to proceed step by step to arrive at any conclusion.

  • Know the Investment Basics
    Before you begin to invest, read to acquire a basic understanding of the process of successful investment. With an active internet connection on your smartphone, this is no big deal. Read as much as you can to understand the subject.
    Tip: Reading and upgrading your knowledge will always be helpful and it will also help you keep pace with the financial world.
  • Investment Rules 
    The clearer your understanding of investing the better you can frame the rules. You can efficiently assess your individual needs and requirements and plan the structure of your investment planning.
    You need to know your preferences about the following:
  1. Risk Profile
    Being aware of your own risk profile is of extreme importance. However, remember that risk profile changes with age and surroundings.
  2. Asset Allocation
    The equity-debt allocation of your portfolio in order to achieve your financial goals.

Tip: Once your investment rules are decided, stick to it and you will slowly be able to achieve your financial goals.

  • Investment Decision
    It ultimately depends on your investment choices whether you will be successful or not in this journey. The more your knowledge is, the clearer the path will be for you. It will help you make wise decisions so that the market changes remain unable to affect your finances grossly.
    Tip: Whatever is your investment choice, the easiest way is to remain invested. That way, you will be able to achieve your financial goals.
  • Expected Returns
    Wise decisions will lead you invariably to desired returns. The more you trod in this field, the more experience you gain. With consistent practice, you gain considerable practical knowledge and understand the market trends better. But to become experienced, you must first put your one step forward into this domain with a basic but clear understanding of the primary concepts. 
    Tip: Understand the risks associated with the investments and then proceed accordingly. However, a systematic approach towards your investment plan is a sure shot way to reach your financial goals.

What is Meant by Investment?

Investment is termed as the process of buying assets for generating returns. The generated return may be received in the form of either “capital appreciation” or  “regular income”.

Keeping the money locked in your safe will deliver no returns or low returns. For generating higher returns, investment is the key. Through investment is actually put into work resulting in enhanced return generation.

  • Begin with Small Contributions

If you are a beginner with limited experience and limited resources, it is better that you begin by doing small investments. Be it small, but inculcate the habit of investing a certain percentage of your income. The investment must not be treated as a burden, but rather a fund to achieve some future goals.

Tip: You can start systematically with an SIP or a monthly investment in a small amount.

  • Begin Early

For achieving bigger financial goals, you must increase the holding time of your investments. The tenure of certain types of investments are unchangeable, but to cope up with that you can begin your journey early. If you are currently 30 years and your retirement age is 60 years, you have 30 years at hand to build up your post-retirement corpus. The earlier you begin, the less you have to invest per instalment. 

Tip: The earlier you begin, the easier it is to for you to reap the benefits of the power of compounding as the tenure is long.

Important Tips for You to Become an Expert Investor

  • Eliminate High-interest Debts

While investing, you must eliminate the high-interest debts as early as possible. This is because every penny that you save on your credit card or other high-interest debt, it saves you a lot of money. In case you are confused about how to utilise a spare lump-sum, choose to repay your credit card debt first. 

Apart from credit card loans, there are other high-interest loans like personal loans, etc. They can be used to meet short term credit requirements. However, if you wish to become an expert investor, you need to eliminate the high-interest debt from your portfolio and opt for a debt-consolidation.

  • Invest First

This concept allows you to build up your investment corpus in a more elaborate manner. As soon as you receive your salary, set aside a fixed percentage to utilise for investing and then spend the rest. The practice of spending first and then saving/investing the rest is a wrong concept to succeed in the investment market. 

  • Portfolio Diversification

As the size of your investment portfolio increases, so increases the importance of maintaining a diversified portfolio. As the saying goes “never keep all the eggs in one basket”, it holds especially true in the case of investment. You should always divide your entire investment corpus into multiple segments to be invested in several funds, rather than keeping it blocked in a single fund. Keeping the entire fund in a single place might be a risky venture. Diversification considerably lessens the risk of such loss.

Also, remember that you should not over-diversify your investments in small chunks. At least 10% of your portfolio needs to be in one asset class before you choose to diversify.

  • Overcome the Mental Blocks

There is no such thing as “I can’t invest as I can’t afford it”. You must search minutely for all the relevant avenues for investment since there remains at least one open to all. You can choose to invest regularly as low as INR 500 monthly in a SIP, that will grow up to a handsome corpus in the long run.

There is no scope for success in case of procrastination. There is no day like today to begin investing. Start as early as possible without excluding stocks or equities as they are comparatively riskier. Be it a lesser percentage of your fund, but never exclude these high-returning options from your investment portfolio.

Considerable Factors for Investment for all Expert Investors

Amidst the plethora of investment options available, it is quite certain that any beginner investor might get overwhelmed. But you must consider certain important factors before settling for any one or more investment options for enjoying maximum benefits. These factors are- investment tenure, goal, profile.

  • Investment Tenure

Planning early for your financial goals would give you a longer tenure for investments. This is extremely important as you get to reap the maximum benefits of the power of compounding only with a long investment tenure. 

  • Financial Goals

The investment goals must be either long-term or short-term. The short-term goals must be chosen from certain guaranteed options. You can utilise the returns generated for long-term goals. The goals have two variants like negotiable and non-negotiable. Children’s education falls under the non-negotiable category. In such cases, choosing the guaranteed return options are advisable. 

  • Risk Profile and Asset Allocation

Your profile plays a key role in a successful investment. Your earnings, your wealth status, your financial targets, your family position, your risk appetite all must be taken into consideration under this context. Your asset allocation needs to be determined when your risk profile is determined.

How to Plan your Investments?

  • Adequate and careful research is essential before settling for any particular investment option
  • Never fall for alluring advertisements; do the necessary research and then proceed accordingly
  • A periodical review is essential to assess the development
  • Tax implications must be considered beforehand to avoid any misunderstanding or ambiguity on the maturity of any scheme
  • It is better to choose the investments which have simple terms of operation

Once you determine the rest of the factors for investment, it is time to select the best product that suits your investment needs.

Top 10 Investment Options

  • Direct Equity

Because of its volatile nature, the stock investments are not equally favoured by all classes of investors. Moreover, assessing the accurate timing of entry and exit may seem complicated and difficult. However, if it is chosen for the long-term, it may yield desirable results providing inflation-adjusted returns when compared to all other options.  How to plan your investments?

Tip: For reduced risk, you can choose to diversify across other sectors and also market capitalisations. For direct equity investment, you have to maintain a Demat account.

  • Equity Mutual Funds

The equity mutual funds require to invest at least 65% of their total assets towards equity and other equity-related instruments. You can manage your equity fund, both actively or passively. The fund manager’s capacity plays a key role in return generation in any actively traded fund. ETFs and index funds can be actively managed which track the underlying index factor too. The categorisation of the equity schemes is done based on market capitalisation or their respective investment sectors.

Tip: Equity Mutual Funds are the easiest way to have equity allocation in your portfolio as the fund managers choose the portfolio and stocks on your behalf.

  • Debt Mutual Funds

If you wish to enjoy steady returns, then a debt mutual funds scheme must be your ideal choice. These are comparatively much less volatile and therefore are considered to be far less risky than the equity funds. The debt mutual funds chiefly invest in fixed-interest generating sectors like treasury bills, corporate bonds, commercial paper, government securities along with other money market instruments.

Tip: Despite steady returns, these mutual funds carry a certain percentage of risk including credit risk, interest rate risk. You must study the documents carefully before investing.

  • National Pension Scheme (NPS)

As the name suggests, this is a long-term post-retirement investment instrument, administered and managed by the regulatory authority of PFRDA. The minimum investment amount for an active tier I account is INR 1,000. This fund is a careful mix of government funds, fixed deposits, equities, liquid funds, corporate bonds, among many other options. Depending on your risk appetite, you can choose the desired percentage of investment.

Tip: There is an additional tax benefit of INR 50,000 for investing in NPS (Tier 1 account) under section 80CCD(1B) which is over and above INR 1.5 lakhs under section 80C of the Income Tax Tax, 1961.

  • Public Provident Fund

This is one of the most popular investment instruments. Although comes with a long lock-in period of 15 years, the instrument possesses sovereign backing. Therefore, there is minimal risk of loss. The tenure is also 15 years in this case. The interest rate of PPF is reviewed every quarter.

Tip: Investment in PPF is completely tax-free. The amount invested up to INR 1.5 lakhs a year is tax-free under section 80C and the maturity amount is also completely tax-free. It is an EEE investment without any tax implications.

  • Bank Fixed Deposit

A bank FD is one of the most popular investment options as it possesses sovereign backing, with minimal risk involvement. It is a comparatively safer investment tool than equity or debt funds. As per the DICGC norms, every depositor of every bank remains insured up to INR 5 lakhs for both the interest earned as well as the principal amount. Depending on your choice and need, you can choose the cumulative interest payout to be either monthly, quarterly, half-yearly or annually or cumulative interest method. The interest gained through this is added to one’s individual tax slab and is accordingly taxed depending on the respective tax slab. The interest rate varies from bank to bank.

Tip: You can get a tax benefit under section 80C of the Income Tax Act if you invest in a Tax-Free Fixed Deposit for 5 years. However, the maturity benefit would be taxed as per the individual’s tax slab.

  • Senior Citizens’ Savings Scheme (SCSS)

As the name suggests, this scheme has been specially designed for individuals above 60 years of age. It is an indispensable option in their investment portfolio. Along with the senior citizens, early retirees are also eligible to avail this scheme. 

This is a five-year tenure plan which can be further extended up to three more years on maturity and can be availed from post offices. The optimum investment limit is INR 15 lakhs. You can open multiple accounts under this scheme provided the total investment amount under SCSS must not exceed INR 15 lakh mark. The interest payout is quarterly and it is entirely taxable and the rate is revised every quarter. But once the investment is paid, the market changes never affect the fund. The interest rate remains fixed till maturity. 

Tip: A tax deduction of INR 50,000 is applicable here under Section 80TTB on the interest earned.

  • Pradhan Mantri Vaya Vandana Yojana (PMVVY)

This is also a government scheme introduced for senior citizens. The annual assured return percentage is 7.4%. The pension income payout frequency can be monthly, quarterly, half-yearly or annually, depending on your choice. The minimum pension value amounts to INR 1000 per month while the maximum limit is INR 9250 p.m. The maximum investment limit under this scheme is INR 15 lakh while the tenure is 10 years. On maturity, the investment amount is refunded to the senior citizens. If the concerned senior citizen dies during the course of the tenure, the nominee receives the value.

Tip: This pension plan helps a senior citizen to secure his future with a pension.

  • Real Estate

Real Estate is considered to be one of the most lucrative investment options available. Your residing place, the house that is meant for self-consumption never falls under the category of investment. In case you have any second property, then that is considered to be one. The value of the property mostly depends on its location. 

Tip: Real estate investment ensures a dual way return—through capital appreciation and through rentals. However, the liquidity ratio here is quite low.

  • Gold

Under the current circumstances, physical gold investment is back-dated. E-gold is the trend now, moreover, several banks sell gold coins. Paper gold is also a considerable option. Gold transactions take place in the stock market. Sovereign gold bond investment is another way to invest in paper gold. 

Tip: Gold investment is one of the best hedge products to have in your investment portfolio. 

Bonus: Life Insurance plans with investment opportunities such as ULIPs plan , Money-back plans, Savings plans, are also available. These life insurance plans also offer tax exemption under 80C.

Begin Your Investment Like an Expert to Become an Investment Expert

This guide sheds light in quite exhaustive details regarding all the plausible aspects of investments for beginners for you to become an expert investor. You must gradually create a diversified investment portfolio for enjoying the best benefits of a successful investment.