The investing sector started booming after some web series and social trends introduced about the Stock market industry, profits, and past scams in India. Every one out of three wants to invest but don’t know much about it. So let’s talk about investing and how you can start investing side by side with your career. So, the first question that comes to mind is what is Investing?
Investing is putting your money away for a long time to get a profit. Banking, Real State, Mutual Funds are regions where people put their money based on risks and profits. Some of these give you a fixed interest(less risky), while others vary according to the market (riskier)
Why investing is Important ?
Consider you earn 50K per year and your spending is 30K then you’ll save 20K per month. And inflation and income are increasing at a rate of 8% and 10% respectively. then in 25 years, your total saving will be 1.7 Crores sounds amazing. But it will only take around 7-8 years to spend all of these if inflation is also increasing. But on the other hand, If you invest your savings and get 12%/year, Then in 25 years your saving will be 4.76 crores.
Only 4% of Indians invest while 50% of the USA.
Types of Investing
Debt – The Debt market is giving a loan to a company or a government scheme at a fixed rate of interest in intervals. The debt market has bonds like the Equity market has stock. Usually, there is no risk, but if the company(it happens when the company is running at a loss and have no money to pay back the loan in time) fails to pay the interest. When that happens, A bondholder can sell any asset left with the company to recover their money before the owners claim anything.
Equity- The Equity simply owning a part of the company. The return is dependent on the company’s profit and loss. Whatever the profit and loss the company will make, it will get divided among all the shareholders. An Equity Mutual fund owns many company’s shares. Equity is riskier as compared to Debt because it depends on the company’s profit and loss. But the return is high in Equity.
Government Schemes – This is the safest way to invest and earn without any risks. Basically, We kind of invest in the Government, and they use that money to improve the infrastructure of the country and new schemes to help people. The Government schemes give a fixed amount of interest for a long time. There is no chance of a fault in returning the money. The Government offers a tax deduction on investments and increases the rate of return.
There is a lot of other ways of investing without doing anything. You can put your savings in FDs, ULIP, and portfolio managers to get a specific amount of interest. Schemes have a low return with zero risks.
The biggest mistake people make is they never calculate risk before investing. There are three types of Investment options available based on the risks associated with them:
- High-Risk Investment
- Low-Risk Investment
- Safe Investment
Risk is the simple possibility of losing money. It is essential to calculate the risk based on the expense of that money in the future. Most people initially invest without calculating the risk, then after facing heavy loss, they withdraw from the market and compare it with gambling. Now let’s make a risk portfolio that makes you comfortable after retirement. That helps you in a medical emergency and protect you from losing all the money savings during the market crash.
Let’s take an example to understand the importance of risk distribution. Let’s consider Shyam has an amount to invest. He has some big expenses, like his sister’s wedding and his father’s medical surgery.
lined up for the next two years. He also wants to make sure that he has enough to handle any big medical or family emergency. So These are some of the necessary events that he can not skip. This event means he has to invest an amount to something safe that grows at least at the rate of inflation. Next, Shyam thinks about other expenses, for his kid’s education, opening his shop, and his dream to travel across India. These images are not specific in amount and not coming for the next 5-6 years. So, here Shayam can take a risk. If he faces any loss, he can compromise with 30-40% of investments. This way, he can choose 40% in high-risk investments, 40% in less risky investments, and 20% in a safe investment. Finally, Shyam can invest in his better retirement life and old-age. After all, He should end with more than he has contributed and a proper risk portfolio. Here is a chart of investment divisions he can do based on the expenses.
Where should you invest?
This is a very common question. People ask for tips on where he should invest. In this era, inflation is increasing at a high rate, so investing becomes necessary for comfort in the future.
If you are a beginner and do not know about the stock market, then you should go for the mutual fund. In mutual funds, you invest the money along with a stock market expert. Basically, he uses his calculations and knowledge to choose the stocks. He charges a small brokerage commission, but there are companies and apps are available with a 0% brokerage charge.
For bigger investments, you can follow these steps:
- Find your net worth according to the current values of the assets.
- Decide the target distribution
- Based on risks, 80-20 debt-equity or 20-80.
- Use SIP for large amounts.
- Choose schemes to invest in
- Always choose tax saving schemes(NSC, NPS, ELSS).
- Keep a total 3-5 schemes in every category.
- Invest, Record, and Remind
- Use online methods: Coin, MF website to invest.
- Always record what you have invested in a central place.
If you find this article, then please this with one who really needs to begin his coding journey.