A Beginners Guide to Basics of Investing

A Walk-Through the Basics of Investing
  1. 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.
  2. 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.
  1. 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.
  2. 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.
  3. 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 This can be withdrawn once you retire or in case of unemployment for more than two months.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.
  4. 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.
  5. 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.

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