It is probably the most popular question that you get asked by family members when you go home for holidays.
You may have completed your education and have just bagged a well-paying job but your family may always ask: “What next?”
Well, the right answer to this would revolve around investment. Not saving, but investment. That’s because investing can help your money grow faster.
So, if you want your money to work hard for you, here is a step-by-step guide to help you chart your investment journey:
Step 1: Educate yourself
If you are new to the world of investments, don’t worry. It is not a big deal. The best thing about investing is that literally anyone can do it. Did you know that the famous investment guru Warren Buffett bought his first share at the age of 11!
But in order to get started, you may need to educate yourself before investing. There are a lot of different investment avenues such as bonds, stocks, mutual funds, Unit Linked Insurance Plans (ULIPs) and so on. Each of these investment avenues have their own pros and cons. The risks and returns vary. Try to read as much as you can so that you can get a better understanding about these avenues.
Step 2: Find out how much you can invest
Everyone operates on a budget. And whatever remains after the expenditure is labelled as savings. The general formula for most people is:
Income – Expenses = Savings
However, the ideal formula should be:
Income – Savings = Expenses
How much money you save shouldn’t depend on your expenses. Instead, how much you spend each month should depend on your savings. This small change can help you increase your savings. With more savings in your account, you can invest more. This can help you increase your financial returns later on. So, sit down and draw up your list of financial goals. And based on that, you can figure out how much you need to invest each month in order to reach these goals comfortably.
Step 3: Find an investment advisor
When you invest in the stock market, picking the right stock at the right time can be very crucial. That requires a lot of time and expertise. However, most people who invest in stocks, bonds and other avenues have regular jobs. It may not be possible for them to spend a lot of time researching markets on a daily basis. That’s why an investment advisor can be very helpful. An investment advisor can help you identify the right investment choices based on your short term and long term goals.
Step 4: Understand your tolerance for risk
When it comes to investments, there is always a degree of risk. Whether it is a savings bank account or the stock market, you cannot avoid risk. However, the degree of risk varies from one investment option to another. It is commonly said: higher the returns, higher the risk.
It is important for you to know how much risk you are willing to take. This is because each investor has a different risk appetite. For example, if you have a low tolerance for risk, it would be unwise to invest in certain avenues like shares. But remember that if you put your money only in a savings account to play it safe, you can risk losing out on higher returns in the long run.
Step 5: Create an investment portfolio
Finally, you can start investing. Based on your investment goals and your risk levels, you can chart out an investment plan with your advisor. You can put your money in options like bonds, Public Provident Fund (PPF), National Saving Certificates (NSC), mutual funds, gold or shares. The important thing is to ensure that your portfolio is well-balanced. For example, you may want to invest in equities. But don’t forget to invest a portion of the money in debt options. This is because, if the stock market crashes, your entire investment doesn’t go down at the same time. The debt investments can give you good support at such times.
Investing is not a destination. It is a lifelong journey. Follow the above steps and you can kick-start your investment journey on the right foot.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
Trading and Demat account
Banks offer a lot of services to their customers. But in order to enjoy all these services, you need to first open a savings account. Similarly, if you wish to invest in the stock market, you need to open a trading and demat account. You can think of your demat account as a savings account for your shares. All the shares that you buy are stored here. And when you wish to sell them, they are taken from here to be sold in the market.In this article, let’s find out the different steps in order to open a demat account and how you can trade using it.Steps to open a demat account:Step 1: Choose a Depository ParticipantDepository Participants or DPs are intermediaries between investors and the depository. Brokers, banks and other online investment platforms serve as DPs in the country. Select a valid DP in order to create your demat account. You can find the entire list of DPs on the official websites of the Central Depository Services (India) Ltd (CDSL) and National Securities Depositories Ltd (NSDL). Step 2: Submit account opening formFill out all the details in the account opening form provided to you by the DP. In addition to the account opening form, you will also be required to submit your KYC documents. This includes:a) Know Your Customer (KYC) formb) Passport size photographsc) Identity proof documentsd) Address proof documents Step 3: Assign nomineeOnce you submit all the necessary documents, you will be required to assign a nominee. This is to ensure that the responsibility of your investments would be assigned to somebody you want in case something happens to you. You also have the option of changing your nominee at a later stage if you wish. Step 4: VerificationYou may also have to appear for an in-person verification. The DP carries out this process to ensure that the details provided in your documents are correct.Buying and selling shares through demat accountOnce you open a demat account, you can start trading.The process is as follows:Select a stock you wish to purchase. Specify the price and quantity.For example: Buy stock X at Rs 50. Quantity: 100 sharesYou can inform your broker to make the transaction or you can do it yourself online. When the stock reaches the price of Rs 50, the transaction is executed. 100 shares of Stock X will be reflected in your demat account. When you wish to sell them, you can make a sale order by stating the price and quantity of shares.The DP sends you statements of your transactions on a regular basis. Go through these statements to be updated on your investments.ConclusionDemat account is easy to use and very beneficial. You can trade many securities apart from stocks. It also provides statistical analysis and performance tracking features. Above all, it is a safe way to invest. Disclaimer: "Investment in securities market are subject to market risks, read all the related documents carefully before investing."
Tips for Choosing Investment Options in India
As long as you are in college, the common advice you get is: study well. But once you get a job and you start earning, the advice you get changes. Your family members advice you to start saving. Saving is good but it is more important to invest.But with so many investment options available, it is difficult to zero in on one investment option. Also, what is the right time to invest in a particular avenue?Well, the answer depends on various factors, one of them being the goals you set in your life. However, your life goals may vary. You may have a set of goals you wish to achieve in the next two, five, 10 or even 20 years. Based on the time limit, your investment goals can be divided into three categories:a) Short-term goalsb) Medium-term goalsc) Long-term goalsInvestment in short-term goalsA short-term financial goal can be something you wish to achieve in the next week or in the next year. Typically, the time span for short term goals is anywhere between one week and two years. For short-term goals, it is good to earn a steady rate of return. But it is also very important to ensure you don’t lose your investment capital. That’s why investment in equities can be a bit risky as they are generally volatile in the short-term. That’s why investment in debt is quite popular among investors when the time limit is less.Investment options for medium-term goalsMedium-term goals can range anywhere from 3 to 5 years. For example, you may want to buy a second car in the next three years. For goals like this, it is best to invest in a healthy mix of debt and equity. It is good to invest in balanced fund to get good returns and to protect capital from exposure. Investment in ELSS funds is also a good option. The best part about ELSS investments is that in addition to good returns, you can also avail tax benefits.Investment options for long-term goalsLife is uncertain and it is always good to plan for the future. That’s why planning for a retirement that is 30 years away is not uncommon among investors. Buying a house or funding your kid’s college education are some of the common long-term financial goals. These goals may be 10-15 years away but it is important to start investing today.It is best to invest in equity funds, ULIPs or stocks for long-term financial goals. Investing in these avenues helps investors get great returns. For example, equity mutual funds offer anywhere between 10-15% per annum and stocks have the potential to offer much higher returns. Investment in stocks is generally considered risky. However, the long time period helps investors to digest risks down the line. Investment in PPF funds and NPS are viable options if saving for retirement and capital preservation are your biggest goals.ConclusionWith so many investment options available, it can get confusing. So, instead of asking which investment to choose, the better question is: what is the right time to choose this investment. So, based on the time period of your investment goals and your risk appetite, you can make your investment decision. Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
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