In recent years, India has seen a tectonic shift in the investing landscape, with more retail investors entering the market. Indeed, mutual fund assets under management (AUM) in India have increased from Rs. 7.46 trillion in September 2013 to Rs. 46.58 trillion in September 2023. So, keep reading if you’re still worried about “How Can I Invest Money?”.
In this fast-evolving investing space, learning the art and science of investing money has become one of the most crucial skills. By discovering how to invest money you may not only fulfil your financial goals and grow your wealth but also secure your future.
But how can you invest money wisely? What are the finest money-management tactics, ideas, and tools? In this article, we will address all of your questions while delving deeper into the fundamentals of investing.
What is Investing, and Why is it Important?
Investing, in its most basic form, is the process of putting your money into anything that has the potential to create income or rise in value over time. Investment can be made in goods or assets, including bank deposits, gold, real estate, bonds, mutual funds, stocks, cryptocurrencies, etc.
Mastering how to invest money can help you achieve various financial goals, such as saving for retirement, purchasing your dream home, starting your own business, or supporting your higher education. Aside from the reasons above, investing can help you save money from inflation, taxes, and other expenses that deplete your savings.
How do you choose the right investment for you?
Picking up the right investment from the bouquet of financial products is not as easy as you think. Before we jump on to how to invest money, you need to decode multiple factors such as risk tolerance, time horizon, goals, and preferences. You also need to be aware of the different types of investments and how they work.
If you want to know how to invest money, here are some steps to follow:
Step 1: Understand your investment objectives
Before you ask yourself how to invest money, ask yourself: What are you investing for? Which of your financial objectives are short-term and long-term? How much money do I have to invest? These questions might help you identify the goal and direction of your investment.
Step 2: Assessing your tolerance of risk
Once you’ve determined those financial ambitions, ask yourself the following questions: How comfortable are you with taking risks? How many fluctuations can you take? How would you react if the value of your investment fell?
These questions might assist you in determining your risk tolerance and perspective. In general, the bigger the risk, the higher the possible return and the higher the risk of loss; thus, how you invest money is mainly determined by your tastes.
Step 3: Determine your investing horizon
Now that your goals and risk preferences are sorted, ask yourself- How long you plan to invest? When do you need the invested money? How flexible are you with your investment duration?
These questions can help you decide your investment time frame. A longer time horizon minimizes investment risk since it gives you more time to recover from market volatility. And the delicious power of compounding adds to the delectability of the feast.
Step 4: Diversify your portfolio.
When learning how to invest money, we cannot overlook portfolio diversification’s necessity. To lower your risk and boost your chances of winning, diversify your portfolio among several assets, sectors, themes, industries, nations, etc.
Diversification can help you manage your risk and return while smoothing market ups and downs. Diversify according to your risk acceptance, time horizon, objectives, and personal preferences.
Step 5: Review and adjust your portfolio
Now that we’ve touched on the essentials of how to invest money. Let’s discuss how important it is to examine and rebalance your investment portfolio.
Choosing the best investment for you is a continuous process, not a one-time event. You can’t just sit back and rest after you’ve invested your money. You must routinely examine and analyze your portfolio’s performance and progress.
| Features | Fixed Deposits | PPF | NSC | Stocks | Mutual Funds |
| Risk | Low | Low | Low | High | Varies |
| Return | Fixed interest rates, generally higher than savings accounts | Tax-free interest, generally higher than FDs | Fixed interest rates with tax benefits | Variable depends on market performance | Variable depends on fund performance |
| Investment Duration | Ranges from 7 days to 10 years | 15 years, extendable in block of 7 years | 5 years | Indefinite | Varies |
| Minimum Investment | Varies from Bank to Bank | Rs. 500 per year | Rs. 100 | One share price | Varies by fund |
| Tax Benefits | Tax-saving FDs qualify for deduction under Section 80C up to INR 1.5 lakh | Qualifies for deduction under Section 80C; maturity amount and interest are tax-free | Dividends are not guaranteed; they depend on the company’s performance and policy decisions | No specific tax benefits; subject to capital gains tax | Equity-linked savings schemes (ELSS) offer tax benefits under Section 80C |
| Liquidity | Premature withdrawal is allowed with a penalty | Partial withdrawal allowed after 7th year | Can be used as collateral for loans; premature withdrawal not allowed | High liquidity; can be sold anytime during market hours | Varies; some funds like ELSS or Debt-funds have lock-in periods |
| Interest Payout | Dividends vary based on the fund’s performance; they are not guaranteed | Compounded Annually | Compounded annually with fixed returns over the period | Compounded monthly, quarterly, half-yearly, or yearly; can opt for regular income payout. | Dividends vary based on the fund’s performance; not guaranteed |
You must also adapt your portfolio to changing market conditions and personal circumstances. You must rebalance your portfolio to maintain your intended risk-return profile and match your goals. Following these steps, you can make informed and confident investment decisions that suit your needs, preferences, and aspirations.
How do you start your investing journey right away?
To get high returns on your investments, you must first begin. If you are unsure of your abilities, take tiny steps and invest for extended periods, but make your initial move.
Let me share some interesting findings of a recent study done by Smallcase and Zinnov that will inspire you to make the first move. So, if you too want to jump on to this investing bandwagon, stop worrying about how to invest money and follow these basic steps:
- Follow the 50/30/20 rule of investing
Divide your post-tax income into three parts- Set aside 50% for your necessities, 30% for your discretionary expenses, and 20% for your savings and investments. This is the most straightforward and effective answer to your query, “How can I invest money.”
- Choosing the Right Financial Product
Investing in traditional products or going for non-traditional products is entirely your choice. It depends on your risk preferences and return expectations. Undoubtedly, most traditional investments offer assured returns, but returns are much lower when compared to new-age financial products like Stocks, Cryptocurrencies, REITs, etc. So, the answer to how to invest money will depend on how much risk you can afford to take and how patient you are as an investor. Patience in investing pays over the long term.
- Seek professional advice.
Please accept that intelligent investing is not everyone’s cup of tea. You may be excellent in your field but still need help deciding on your financial products. How to invest money is the journey from awareness generation to post-investment behavior. So, do not hesitate to seek professional advice from experts whenever needed.
5 Best Beginner-friendly Investment Options to Invest Your Money
To help you get started, here are five of the best beginner-friendly investment options that you can consider. These options are easy to understand, accessible, affordable, and diversified. They can help you build a solid foundation for your investing journey and prepare you for more advanced options in the future.
Key Takeaways
Now that we’ve covered all there is to know about investing, from what it is to the basic guidelines to avoid mistakes along the way and everything in between, we’ve arrived at the end of how do you invest money.
Investing is frequently misunderstood as a get-rich-quick scheme, but investing money requires more skill than luck. Investing involves meticulous planning, study, analysis, patience, and discipline. Knowing your talents and weaknesses is essential to learn how to invest money.
Assess your risk tolerance, investing period, investment corpus, and, most crucially, your financial goals. Begin your quest on how to invest money by categorizing your objectives into two categories: short-term and long-term. Plan by your objectives.
For long-term goals, you can invest in equity products such as firm, solid stocks, mutual funds, REITs, ETFs, and safety products such as bank deposits or debt funds. Don’t forget to check and reassess your results regularly. That’s all there is to it.
FAQs
What is the difference between saving and investing?
Saving is putting money aside for future use, typically in a safe and liquid account such as a savings account or a fixed deposit. Investing is putting your money into financial assets or things that are likely to create income over time, such as stocks, bonds, or real estate.
What is the minimum amount of money that I can invest?
There is no fixed amount of money that you need to start investing. You can start with as little as INR 100 or as much as INR 10 lakh. The important thing is to invest according to your goals, risk tolerance, and time horizon and to invest regularly and consistently.
How do you invest money in stocks?
People frequently wonder, “How can I invest money in stocks?” because it is complicated. But this is not the case. Opening a brokerage account is the first step to start investing in stocks. Then research the basics of the firm in which you want to invest. The safest technique for selecting financially stable firm stocks is to choose companies you use regularly, such as the biscuits you eat or the flour you use. However, before purchasing, thoroughly research the financials and prior performance.