Smart Ways to Invest Money for Beginners

Published On: 11-Sep-2020

When it comes to investing, the options may range from investing in traditional investment products like fixed deposits to investment products in financial markets like shares, mutual funds, etc. Each of the investment product carries its pros and cons. 

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The millennials tend to be attracted to investing in equities due to the potential for returns and long-term wealth creation. However, investing in stocks calls for specialised financial knowledge to make the right investment. Further, one must continue to monitor the investments for any adverse changes in the sectors/ economy to exit the investment at the right time. 

Instead, one can consider investing money in mutual funds. Apart from professional fund management for the money invested, mutual funds also provide a wide range of investment options for investors to suit their specific goals and financial plans. 

This article aims to discuss smart ways of investing money for beginners. 

Smart Ways of Investing Money for Beginners

1. Systematic Investment Plan (SIP)

SIP is a process for a disciplined investment of a certain on a pre-decided date in a specific mutual fund scheme, regularly over a period of time. It refers to the systematic investing option, wherein the investments are made on periodic intervals in a pre-specified mutual fund scheme. The investments are made irrespective of whether the markets are moving higher or lower. Investing across the market movements enables the investors to continue their investing journey and accumulate wealth over the long term. Such consistent investing allows investors to eliminate emotional bias in the investing journey.

2. Equities for Long Term Wealth Creation

Equities enable investors to participate in the growth stories of different companies. While equities may be volatile over the short-term, they tend to reward investors who stay invested for a longer duration across the market movements. 

One can consider investing in equity funds with a long-term investment horizon. Even within the different equity funds available, one can choose from large-cap funds, multi-cap funds, small-cap funds, value funds, etc. as per their preferences and risk appetite. However, instead of trying to time their equity investments, the investors should invest through SIP.  

3. Systematic Transfer Plan (STP)

It is an investment option provided by mutual funds that allow investors to switch their investments from one mutual fund scheme to another. The mutual fund scheme from where the investments are switched is called the source scheme, while the scheme in which investment will be made is called the target scheme. 

One may receive some windfall receipts like an annual bonus, gifts, etc. but he/ she may not be willing to invest such amount in equity schemes in lumpsum. In such a scenario, one can consider making lumpsum investments in relatively safe debt schemes. 

Such investments can then be switched to equity schemes over a period through STP to benefit from rupee cost averaging. This helps the investors to avoid the timing risk of investing in equities, while also enabling the investors with a potential to generate better returns in the interim period. 

4. Asset Allocation

It is not advisable to keep the investment portfolio concentrated within a single asset class. One must keep the investment portfolio diversified across the asset classes. This allows the investors to benefit from the returns from different asset classes as and when they happen. One may choose to invest in hybrid funds like a balanced advantage fund, which dynamically manages the asset allocation of the scheme as per the relative valuations of the asset classes. 

5. Emergency Fund Corpus

Maintaining an emergency fund corpus equal to at least six months’ expenses to meet any future contingencies is advisable. Such a corpus often stays parked in a savings bank account, thereby fetching lower returns as per the bank’s savings interest rate. Instead, one may hold such an emergency fund corpus in liquid funds and overnight funds, which provide reasonable liquidity with insignificant investment risks. It enables the investors to generate returns out of their emergency fund corpus while maintaining reasonable liquidity and stability.  

With the above smart ways to invest money, one may take the first step in their investment journey at the earliest.