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Five steps to begin investing

by Money Puzzle   ·  May 29, 2020   ·  

Five steps to begin investing

by Money Puzzle   ·  May 29, 2020   ·  

Photo by Wendy Wei from Pexels

Use the extra time you have through this health crisis, which has forced us to pause and stay still, to begin your experience in investing. You can start with as little as ₹500. It can be done even if you are yet to get your placement out of college or fearing a job loss or already facing it, this is not something you need a large pile of money for.

Investing is all about getting the right kind of experience from the start. It is this experience which will shape your investing behaviour for years to come. Thanks to innovations in process and digital enhancements, investing can begin with a small lump sum and an even smaller monthly contribution. This is not just something you can do in market linked investments like mutual funds and equity stocks, but you can try this with bank fixed deposits too.

Before we get into which products to invest in, here is what you need to do to get started.

1. Write down why you are investing

The reasons could be many. You may be investing because you have realised that the job market is unpredictable given the economic environment and you want to create supplementary income. You may be investing just to get the experience of owning financial securities and understanding income that is generated from that source. Or you may be investing because you have surplus cash and you don’t want to waste it by spending it all.

Whatever your reason, first write it down.

Why are we writing something we already know?

We are doing this because once you start on your investment journey, time will fly by and a year or two later, you have to match your outcome with the reason you began investing. Circumstances in life change and suddenly if you find that your investment value is down, it will alarm you. But if you go back to your written word and realise that this was meant to be invested for 10 years, you will calm down and not do anything.

It could also be that you wanted to invest money that you could take out a year later for buying a car and decided to invest in equity. Now in a year, the value of your equity investment has barely grown or may even be negative, when you see this you will realise that investing in equity for short term goals is a mistake.

Writing down your objective or goal, makes it a real reason rather than an experiment. There are learnings in the investment journey, which you can then write down alongside the goal when you relook your choices at the end of a year.

2. Pick the asset that best suits your needs

It’s easy to do what others are doing because you know that they are already doing it and with some success. However, it may or may not be the right investment for you. If your mother or father always used fixed deposits as a tool to invest, should you start with those too? If your elder sister just began a regular investment through systematic investment plans (SIPs) in equity mutual funds, should you invest in those too?

The answer to which asset you should invest in, depends on what you wrote down as your objective.

Growth assets like equity and real estate, need to be held for many years (in excess of 8-10 years) for your returns to compound and stabilise. On the other hand, investments in debt funds and fixed deposits are better for building short term stable returns. Gold, on the other hand, acts a good store of money value in most years and as a safe haven asset in times of uncertainty.

Decide why you want to invest and then pick where. Ideally, have a mix of assets in a manner that suits your multiple objectives.

3. Identify how to go about it

How are you going to invest? Finding the right platform to help you invest is important. Again, technology has really marked this space in a big way. Traditionally, your bank manager was your best bet but you don’t need to head in that direction anymore. Get online. There are several ways to invest. You can choose from robo advisors like Scripbox, Arthayantra and so on or go for a broking firm like Zerodha, ICICI Securities, HDFC securities to name a few.

Broking platforms linked to banks are likely to be more comprehensive in the product suite they offer, but in terms of pricing, they will fall short. Hence, you may want to split up the options for non-market linked investments and market-linked investments. Market linked investments like mutual funds can be invested in via advisory based platforms or direct platforms. Pick the one that suits you. If you understand how asset management and financial planning work, then pick a direct only platform like Kuvera, MFU, PayTM Money, Coin to name a few as costs are minimum. If not, then go for a full service, goal-based robo-advisory platform.

You will have to do a little bit of research but it is all out there.

4. Ask the right questions

How is the return generated? What is the risk, can I lose money, is it guaranteed? How long should the investment tenure be? Who will manage my money? In what form will the return come, interest, dividends? Will I pay tax on the returns?

These and similar questions have to be addressed before and not after you have made an investment. Your investment journey is about learning, so it’s assumed that you will make mistakes. But that does not mean that you are unwise about where you are investing.

Don’t make the mistake of going in blind. Open your eyes, understand what you are looking at and only then take the plunge.

If you are a do it yourself type of person, then do your homework yourself too. Take the time to do the research behind these investment options before committing your money. If not, then take some time to find the right advisor, who has done their homework. Advisors are online or in person, you can choose.

5. Tap

After doing all this research and homework, don’t stop. Now you need to take the last step and tap your finger to the screen. Go ahead and do it!

You will have several doubts before you begin, but the fact that you can start with ₹5000 and don’t need large sums to get the experience is a great enhancer. There is no excuse now with the easy access online investment platforms.

What are you waiting for? Overcome that fear, inertia, lethargy or whatever you call it and just get started!

Stay home but keep investing.

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