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Basics of Investing for Beginners

An investment is any instrument that allows you to allocate funds toward the goal of generating returns and increasing your wealth. As a beginner, it is essential that you familiarise yourself with the basics of investing before you begin.

 

There are various types of investments and a thorough understanding of each type will help you make the best investment decisions. Some options of investing for beginners are Fixed Deposits, Savings Accounts, Bonds, Mutual Funds, Stocks, PPFs, ELSS, ULIP, and Commodities.

 

To learn the basics of investing for beginners and start your journey towards a secure financial future, read on.

Why Should You Invest? 

As a beginner you might wonder, “Why Should I Invest?”. The answer to that is quite simple – to secure your financial wellness for the long term. One of the top benefits of investing, regardless of investment type, is that you can grow your wealth over a period of time.

 

Moreover, with rising inflation being financially responsible and thinking ahead of time is crucial. By investing, you have the option to efficiently mitigate the erosion caused by inflation, while also safeguarding your wealth. 

 

Although a savings account can help you create a reserve to aid in times of need, it may not fully protect you when financial adversities strike. During such times, the wealth generated through investments can prove to be extremely beneficial. 

 

However, to reap the benefits of investing as a beginner, it is vital that you learn to invest smartly. Having an in-depth understanding of how investment works and knowing the basics of investing will help you make better and more informed decisions.

 

The first thing to remember is that as a beginner, not much can hinder you from taking risks and thus you have the liberty to experiment with investments. If you play all your cards right you could end up gaining enormous wealth through the benefit of compounding. 

 

Here’s an easy guide on investing for beginners.

How to Choose an Investment Option for Beginners? 

A lot of factors need to be taken into account before you decide where to invest. Here’s what you need to keep in mind before you make your investment decisions: 

 

  • Financial Requirements

Before you decide to invest, you need to put your financial needs in order. After that, plan out a course keeping the financial goals in mind.

 

  • Risk Appetite

An important factor while making investment decisions would be your level of risk tolerance. This is because there are some investment instruments that carry a higher risk for your investment amount. However, these may also generate better returns in the long run. 

 

If you’re someone who wouldn’t mind taking higher risks you could opt for investment options such as stocks, mutual funds, etc. Whereas if you’re looking for safer investment opportunities you can opt for FDs, bonds, etc.

 

  • Tenor

Before investing, you must make yourself aware of tenors offered by various investment options. This way, you can clearly map out where to invest, for how long to invest and when you can liquidate your investments.

 

  • Rate of Interest

Each investment option comes with a different rate of interest. These interest rates have an influence over your returns. By understanding the interest rates of different investment instruments and their impact on the returns, you can choose the one which offers the best returns as per your goals.

 

  • Diversification of Investments

It is important to build a financial portfolio that is diverse based on your investment objectives. Since different investment instruments have different risks, you can distribute your funds in different options and create a balance between your risks and returns.

 

  • Periodical Monitoring 

With changing market values, it is important to closely monitor your investments so that you can assess the returns and consider reinvesting them elsewhere if they do not generate the returns you want.

List of investment options for beginners

If you’re a beginner who’s wondering, “Where to Invest?”, there is a wide range of investments that you can consider as per your financial preferences. Here’s a table that will help you get a clearer perspective on available investment options.

Type of Investment

Tenor

Rate of Interest

Best for

Fixed Deposits

Fixed Deposits are among the safest investment options. They are moderate-yield investments that offer stable returns with flexible interest rate pay-outs. 

5 - 10 years 

6.60% -8.75% p.a.

Risk averse investors 

Savings Account

Savings Accounts are investment options that generally have a low start-up requirement. It is a liquid asset that doesn’t have a lock-in period, so you could always access your money without having to worry about selling your investment. 

No particular tenor

2.5% - 4% p.a.

High liquidity

Bonds

Bonds are debt instruments that represent a loan issued by a corporation or the government and have interest rates higher than that of banks. 

7 years 

7.2%- 7.6% p.a.

Risk averse investors 

Public Provident Fund (PPF)

Public Provident Funds or PPFs are good investment options if you’re looking to invest for a longer term and expecting guaranteed returns. 

15 years 

7.1% p.a.

Risk averse investors 

Mutual Funds

Mutual Funds are investments where a number of investors pool their funds that are then managed by a fund manager. On the basis of your risk tolerance, tenor and returns expectancy, you can opt for either a Debt Mutual Fund, Equity Mutual Fund or a Hybrid Mutual Fund. 

No particular tenor 

9.47%- 20.77% (Equity Mutual Fund) 

6.66%- 8.65% (Debt Mutual Fund)

8.63%- 19.18% (Hybrid Mutual Fund) 

Higher returns 

Equity Linked Savings Schemes (ELSS)

ELSS are mutual funds that provide tax benefits. They are high return investments since they allocate a large portion of their funds in equity. ELSS are investment options that come with an inherent risk since they’re an equity investment. You can also opt to get dividend pay-outs to receive a regular income. 

3 years 

15% -18% 

Capital appreciation and tax saving

Stocks

All businesses and profit-making institutions issue stocks to help them operate their business. Stocks are highly risky investment options since their value and returns are determined by fluctuations in the market.

No particular tenor

Market-linked 

Capital appreciation 

Unit Linked Insurance Plans (ULIP)

ULIPs provide both life insurance as well as investment benefits. In this kind of an investment, a part of your premium is invested in various funds thus giving you market-related returns.

5 years 

Market-linked 

Tax deduction

Real Estate

Real estate involves the purchase of a physical space such as a house, a land, an apartment, or others. The ownership of a commercial or a residential property is a minimal risk investment opportunity that provides security and also stands to gain profits if sold at the right time. 

NA

Market-linked 

Portfolio diversification 

Commodities

Commodity investments refer to investing in resources such as gold, crude oil, silver, agricultural products and others that are tangible in nature. It pools the contributions of various investors to trade in the commodities market. 

NA

Market-linked 

Inflation protection 

Disclaimer:  The aforementioned interest rates are based on market estimates at the time of publishing. These rates are indicative and actual returns may vary. 

Features and Benefits of Investing for beginners

Investing comprises various features and benefits, some of which are listed below.

  • Expansion of Wealth

Investing leads to expansion of your wealth. With investment options such as FDs, bonds, stocks and many others, you can stand to gain returns over a certain period of time facilitating financial growth. 

  • Higher Returns

One of the main motives of investments is to grow your funds. By diversifying your money across various avenues that offer higher returns, you can increase your wealth and take a step closer to financial freedom.

  • Retirement Security

Investing early on in life can help you increase your wealth so as to live a secure financial life post retirement. 

  • Tax Reduction

Various investments offer tax redemption options that will help you retain funds that you would otherwise lose to tax payments. 

  • Achieve Financial Goals 

Investments help you accumulate wealth that you can utilise to achieve your financial goals such as buying a home, paying for your children’s higher education, buying a car or starting a new business. 

 

As a beginner, investing may seem daunting and quite a task, but with a good deal of research you will be able to make the best investment decisions. You have a wide range of investment options to choose from. 

 

A key point of investing for beginners is to know your risk appetite, financial requirements, and do a thorough assessment of market prices. This way you will be able to choose where to invest and opt for high return investments that will contribute to wealth creation. You can use the FD maturity calculator to figure out the interest you would earn monthly on investing in a fixed deposit. This tool takes your inputs such as the interest rate, tenor, and deposit amount, and calculates your return on investment instantaneously.

FAQs

  • ✔️How much should my investment be as a beginner?

    Whether you invest as a beginner or as a pro, your investment should be in alignment with your goals.

  • ✔️How should I start investing?

    As a beginner, you should start investing by understanding your current financial standing and goals. After that you can assess different investment options for beginners and decide which best suits your goals.

  • ✔️How to choose the best investment option?

    You should invest in the investment instrument by first understanding the purpose of your investment. After that, you should compare the returns and benefits of instruments. Based on that, you can decide which option is the best for you. Be sure to check the investment amount and tenor to prioritise your current financial standing too.

  • ✔️What are the different options of investing for beginners?

    The best investment options for beginners are the ones that are suited for your goals as well as risk appetite. Some common investment options are FD, stocks, mutual funds, PPFs, real estate, and bonds.