Every investor aims to invest funds in such a way that without risk of losing the principal, the returns are high to meet the future financial goals. This is, however, a fallacy, as there is no return without risk. Higher the return on funds, higher is the risk involved. However, you need to still invest in meeting your financial objectives both in the short and long term to insulate your family from financial emergencies and fulfilling aspirations by creating wealth. It is always prudent to start investing early to enable you to grab investment options that will permit you enough time to build upon. As a beginner, you need to be clear in your vision as to what investment options you would like to choose, to help your money grow with reasonable returns over some time, yet not be risky while protecting the principal. In other words, the approach is described as a conservative that ensures a low-risk profile for you initially.
How to begin gauging investment options:
Before you start investing, you need to assess your requirements and then go about choosing the areas that are of interest to you to fulfil your aim. The following steps can be handy to the beginner:
- Type of investment: The beginner in you must know what investment is in reality. There are broadly two types of investment.
- Financial Assets: This product bucket can be further broken into two types:
- Market Linked: Stocks, shares and Mutual Funds
- Fixed income: Public Provident Fund, Bank Deposits etc.
- Non-Financial Assets: Gold and Real Estate
- Objective: Financial planning is an important aspect of your investment. As you stand today, plan for what you wish to achieve in future and the projected time frame. How you project your future goal like owning a house, buying a car, meeting emergency medical expenses, enjoying vacations, children’s education, children’s marriage and finally your retirement. Once you lay down the priorities taking into account all the possibilities, you are in a better position to weigh your investment options.
- Your financial status: It is important for you to assess your current financial status and your capacity to invest. Based on a realistic assessment, you can prioritise the investment options while considering even your projected future financial standing.
- Risk profile: As a beginner, the prime aim should be to go in for a safe and secure investment with the lowest risk but with a reasonable return. You would surely not like to take a risk at the beginning and lose your investment running after sky-high returns. You can leave that to future and adjust your risk profile accordingly with the changing overall scenario. Like most Indians, you can also begin by choosing investment options in the fixed income category and later go for market-linked instruments.
- Quantum of investment: Based on your assessment of your financial status and the low-risk investment options, you may take a call on how you apportion your funds for investment.
- Benefits: Look for the additional benefits. Many investment options come with Income Tax exemptions that may be of value to the budding investor.
Investment options for the beginner:
Here we are going to discuss the investment options that will suit the beginner best with a fair amount of safety protecting the invested money as well as ensure a certain amount of liquidity.
- Life Insurance: Taking an insurance policy is of prime importance to the beginner, as with a wide array of products that will not only help your money grow but will also meet most of your financial requirements in the long term. Life Insurance products are usually fixed income type, yet there are also products that offer market linked returns with ULIP, on top of providing life cover securing the future of your family when you are not there. It is a contract that provides death benefit or a lump sum payment along with additions after a set period on survival against a premium. The various life insurance plans that will be of interest to the beginner are:
- Whole life
- Money Back
- Savings and Investments
- Public Provident Fund: It is one of the most popular long term investment options in the country sponsored by the Government of India. The salient features of PPF are:
- A PPF account can be opened by Indian citizens only, even a minor.
- It can be opened in any Bank and Post Office.
- The tenure of the account is for 15 years with an option to extend it for another five years.
- The minimum investment per year is Rs.500/- and the maximum per year is Rs.1.5 lakhs.
- Tax exemption is allowed under Section 80C of the IT Act, 1961 for a maximum of Rs.1.5 lakhs.
- Partial withdrawal is allowed after five years.
- From January 1, 2019, the rate of interest payable is 8%.
- Bank Deposits: It is a safe investment option for beginners both for the long and short terms. The bouquet of offers is multiple with varying rates of interest depending on the period of maturity which ranges from 7 days to 10 years. Various types of deposits are:
- Short for periods ranging from 7 days to less than one year.
- It is fixed with compounded interest for periods ranging from 1 to 10 years.
- Monthly Income
- Quarterly Income
- Tax Saving with a five-year lock-in.
- National Savings Certificate: It is Government of India sponsored fixed income investment option. The salient features are:
- It has two fixed terms of 5 and ten years.
- It can be opened only in Post Offices.
- From January 1, 2019, that the rate of interest payable is 8%.
- It enjoys tax exemption under Section 80C of IT Act, 1961.
- Employees Provident Fund: One of the investment options meant for an employee, where a percentage of his salary usually 12% goes to the fund managed by EPFO under the Government of India. The employer also contributes a like amount. The corpus is built throughout his employment to be used on retirement. The current rate of interest payable for 2017-18 is 8.55%.
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Investment options for beginners are also the ones that are most popular in India primarily because they offer sustained returns while ensuring protection to the principal invested. As a thumb rule, the beginner needs to confine to fixed income investment options and market-linked instruments like ULIPs that offer multiple benefits.