An investment is any instrument that allows you to allocate funds to generate returns and increase your wealth. As a beginner, you must 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 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.
As a beginner, you may 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 the avenue you choose, 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 mitigate the decrease in your purchasing power caused by inflation while also growing your wealth.
Although a savings account can help you create a reserve for times of need, it may not fully protect you when adversities strike. During such times, the wealth you generate 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 an investment works and knowing the basics of investing will help you make better decisions.
The first thing to remember is that as a beginner, not much can hinder you from taking risks. Thus, you have the liberty to experiment with investments. If you play your cards right, you could end up generating ample wealth through the benefit of compounding.
Here is an easy guide on investing for beginners.
If you are a beginner who is wondering ‘where to invest?’, there is a wide range of options you can consider. Here is a table that will help you get a clearer perspective on the 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 payouts. |
5 - 10 years |
6.60% - 9.20% p.a. |
Risk-averse investors |
Savings Account Savings accounts have a low requirement to get started. They are liquid assets that do not have a lock-in period, so you can always access your money. |
No particular tenor |
2.70% - 7.25% 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 |
6.97% - 7.75% p.a. |
Risk-averse investors |
Public Provident Fund (PPF) PPFs are good investment options if you are looking to invest for the long term and expect guaranteed returns. |
15 years |
7.10% p.a. |
Risk-averse investors |
Mutual Funds Mutual Funds are investments where a number of investors pool their funds, which 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 Hybrid Mutual Fund. |
No particular tenor |
11.90% - 17.00% (Equity Mutual Fund) 5.70% - 10.20% (Debt Mutual Fund) 10.50% - 29.80% (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. You can also opt to get dividend payouts to receive a regular income. |
3 years |
24% - 37% |
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 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, land, an apartment, or others. The ownership of a commercial or 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.
Whether you are a beginner or an experienced investor, your investment should be in alignment with your goals and finances. The amount varies based on your income and needs, but experts advise investing at least 10% of your annual earnings.
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.
You should choose an instrument by first understanding the purpose of your investment. Then compare the returns and benefits of instruments. Based on that, decide which option is the best. Be sure to check the investment amount and tenor to prioritise your current finances too.
The best investment options for beginners are the ones that are suited to your goals as well as risk appetite. Some common investment options are FD, mutual funds, PPF, and bonds.