Investing for the First Time? Here are Some Tips for Beginners

According to an article in The Hindustan Times in early 2015, there has finally been a predominant trend of household savings in India being funneled towards financial assets instead of physical ones, like gold and property. Experts believe that this is indeed smart money management, since physical assets are no longer providing handsome returns. If you are starting off with investing, the focus should be on mutual fund investments perhaps. We look at some guidelines to follow for first time investors.

Starting off with Investments: Here are Some Options to Consider

Some top investment choices for beginners include:

1. Stocks: When choosing stocks for investment purposes, beginners should consider seasoned one that have been stable for a period of time. Primarily, these stocks would be the ones belonging to the more established companies, dealing in goods of everyday needs, the demand for which would be sustained despite the economic scenario. For instance, stocks of companies dealing in food items, cleaning agents or personal care items must be considered. These stocks have the ability to rise fast. Therefore, you need to buy when their prices drop and consider selling when prices seem to have peaked. This can help you make profits and provide a boost to your investment plans.
   
2. Certificates of Deposit: Financial planning in India is incomplete without these risk free investment instruments. Certificates of Deposit entail no risks; however, the returns are fairly low. Besides, there are no quick gains here. You will need to keep your money with the bank for a period of 6 months or more. The bank pays you back with interest, which is not generally very high. If you want to be a seasoned investor with CDs, you can choose three certificates with 1, 2 and 3 year maturity periods, respectively. This way, you can periodically cash out on your investments.
   
3. Mutual Funds: These funds are ideal for beginners because they are managed by seasoned investment specialists. An experienced fund manager often succeeds in generating handsome returns for all investors who might have pumped in cash into a fund. Also, mutual fund investments can be started with a very nominal amount and hence easy to manage for beginners.

Above all, you will need an expert investment advisor for help and support. Choose an investment company that understands your needs as a beginner and provides suitable suggestions for building on your investments. The idea is to move from strength to strength and gain confidence as you gain grip on the investments. Your personal interests as well as your comfort levels should be given foremost importance when providing suggestions.

Above all, investments should begin with smart money management. You should start saving early and give yourself more time to build a corpus. Only then can investments reap the best rewards. 

How to Choose the Correct Mutual Fund for My Needs?

The asset base of equity mutual funds (MFs) surged 13 percent to Rs 3.45 lakh crore at the end of March 2016, compared to Rs 3.05 lakh crore in March 2015, says an article published in The Economic Times in April 2016. Mutual fund investment is considered to be an effective tool for building a significant corpus, whether for the purpose of wealth creation, retirement planning or savings. Being professionally managed, it is ideal for individuals who do not have the time and knowledge to assess the market day-in and day-out. When you invest in an MF, most of your investment decisions are taken by experienced portfolio managers.

Steps to Choosing the Right MF

There are various types of mutual funds in India, including equity, debt and hybrid. Each scheme invests in different types of security. They have a specific objective and carry different levels of risk. You should familiarize yourself with the different types and the risks each one carries before parking your money in any one of them. Here are a few steps to choosing the right money management tool:

 Identify Your Goal – You must identify the objective with which you are investing your money. You can consult a financial advisor, who will assess your expected rate of return, your current financial condition, and risk appetite and investment time horizon to determine the amount of money you must invest and the type of scheme you should opt for.

Choose a Scheme – While choosing a scheme, you need to assess its past performance for the short, medium and long term of 6 months, 3 years and 5 to 10 years, respectively. You must also calculate the risk-adjusted returns of the scheme, comparing the returns offered by the scheme with that offered by securities carrying zero risk, such as government treasury bills. Also, choose a scheme that has consistently surpassed benchmark indices. You can also refer to the ranking provided by various research portals.

Know the Fees – Annual charges and fees for mutual funds in India might include advisory fees, transaction costs and annual management charges. Make sure that you are not exorbitantly charged.

Assess the Fund Manager – Go through the fund manager’s qualification, his past performance and investment style. He should be consistent in his investment style and adhere to the objective of the scheme.

To know more about money management though mutual fund investment, you can consult your financial advisor.

SIP Plans – Your Path to a Safe and Financially Secure Future

Did you know that you can calculate your expected rate of return on systematic investment plans (SIPs) through the SIP calculator online? Other calculators also let you calculate the amount you have actually gained till date through an SIP. This helps you plan your future goals better. Mutual fund investment lets you invest in the stock market without directly exposing your assets to market volatility. It is considered to be an appropriate tool to hedge risks and diversify your portfolio. Objective oriented investments can help you build a significant corpus, which can be used as a retirement fund or to fulfil other financial responsibilities, such as a child’s education and marriage. What if I say that you can meet your goals in a much shorter time and by investing a much lesser amount in one go? This is possible through an SIP. 

mutual funds in India

What is SIP?

A Systematic Investment Plan is a disciplined approach towards investing in mutual funds in India. It lets you contribute a certain sum at a pre-set date every month towards a mutual fund. It helps you bring regularity and discipline to your investments. Also, it helps lower the burden by allowing you to invest as little as possible at one time. It is one of the best tools for money management and wealth creation. 

How Does it Work? 

You have to instruct your bank and activate auto debit. A predetermined sum of money is then auto-debited from your bank account every month. This money is then used to buy mutual fund units that you have invested in. The units are then transferred into your demat account. The purchase takes place according to the NAV for that particular day.

How Does it Help Accumulate Wealth?

An SIP can help you maximise the power of compounding. In other words, money gets compounded more number of times over a long horizon of time. You can also benefit from rupee-cost averaging. In such a case, you buy fewer units when the prices are higher and more when the prices are low at the same cost. This lowers the average cost of investment in the long-run while eliminating the need to time the market. SIPs are especially beneficial for long-term investments.

You can exit an SIP as and when you wish to. It invests in open ended schemes, therefore you can withdraw your money as well. You can also increase or decrease the amount you contribute every month. You can also contribute monthly, quarterly, half-yearly and so on. You can extend a plan if you have not been able to achieve the set target. Mutual funds in India may have a minimum limit for investment. Generally, companies set Rs 500 or Rs 1,000 as the minimum limit.