Well Done!! Give yourself a pat on the back……you deserve it!! If you have landed on this page, it means you are already a step closer to taking some of life-changing decisions.
Just to give a small insight on what is investing and how is it different from savings. Investing is putting all your excess money into different financial instruments such as bonds, equities, property & schemes, to maximize your returns. Often people just put their money into a bank, considering it to be the safest and best investment. But when you end up calculating your saving, you realize you lost more than you actually saved, since the interest rate offered by a bank is lower than the inflation rate of our country.
So, let's take the high road to multiplying your money through investments.
- Create an emergency fund- one must always have a liquid emergency fund of typically for 6months of your expenses. This will be your go-to fund for cases like medical emergencies, accidents, or job loss. To build this fund, you must invest a small part of your monthly salary till you reach the required amount.
- Set Goals for your Investments- Investments should be made with a respect to a specific goal, be it an international trip, a luxury car, or owning a home. Now accordingly you can invest in schemes, mutual funds, gold, or properties. Though gold and FDs seem to be the most risk-free & safe investment avenues, there are far better schemes out there that actually give you multifold benefits when compared to the traditional avenues. Most people are not only risk-averse but are also too impassive to conduct the required research for the correct investment vehicle. This is where the personal finance apps come to our rescue. These apps suggest the best schemes and instruments tailored to our goals.
Types of Investments:
- Physical Assets: Assets that can be touched and felt. Eg: Gold and property. Property mainly consists of land or real estate. These assets are not only difficult to invest in as they require lumpsum amounts, but also to maintain and sell as their prices are dependent on the demand and supply equation of the market and thus the prices may vary a lot. Gold is considered to be the safest investments assets since historic times. Indians have always believed in investing in gold, and now with the advent of Gold ETF, you can also buy gold stocks, just like any other stocks.
- Financial Assets: These comprises of two subcategories- equity-based and debt-based. Debt-based assets include Fixed Deposits, Bonds, debt mutual funds etc. The basic functioning of debt instruments is that you lend your money to banks, who further lends it to governments or corporates. In return, it will share a percentage of the interest that the bank receives from them. These are low-risk instruments. Equity-based instruments are the ones that give you part ownership in the business. These equity-based assets get traded in the stock market and the prices move accordingly.
- Employee Provident Fund (EPF): Here both the employee and the employer gives a 12% contribution of the basic and dearness allowance to EPF. The employee also receives an interest on this invested amount. This can be withdrawn once you retire or in case of unemployment for more than two months. These are also tax saving schemes as this amount is exempt from taxation.
- Fixed Deposits: This is saving a particular amount of money with the bank and usually has a lock-in period, post which the amount along with accumulated interest is given back to you. These are the safest but also give the lowest returns, and may cause a nominal penalty charge in case of breaking the FD before the maturity date.
- Mutual Funds: It is a pool of money collected from investors, which is managed by the Fund Manager, who then invests the money into shares and stocks as per the investments strategy. The risk is higher but the returns are also higher than traditional instruments. The returns are then returned to the investors in the ratio of their initial investment.
The best investment decision includes diversification of investing instruments. One should not invest in one avenue alone, instead invest in multiple instruments according to the investment goal and individual risk.
Diversifying the investment portfolio, reduces the risk multifold, since the downside of one asset will be balanced out by the upsides of other instruments in your portfolio.
Gone are the days when you would have to do all the research yourself in order to find an investment strategy best suited for you. With the market full of personal finance apps, you have a financial advisor right in your pocket. These apps take in your risk appetite, your investment goal, tenure of investment and then recommend you the best schemes accordingly. Post this all you need is to invest and relax, while you see your seeds growing to be a tree in the future.
SplitEase helps you automate this. You can sign-up for early access. https://splitease.com