If you are in your 20s or 30s, you are likely busy paying off your education loan, saving for a house, or starting a family. Add to that the notion that investing is only for older or richer people or the confusion caused by the number of investment options and strategies. If any of these prevent you from financially securing yourself, please know that investing is possible and needn’t overwhelm you.
You can invest as low as ₹100 and get good growth in many different ways, like investing in the stock market. Did you know only 3% of Indians invest in the stock market, and only a few know its potential?
Picture this: in the last 5 years (From 19-02-2019 to 19-02-2024), the NIFTY 50 index, or the top 50 stocks according to NIFTY, has grown by 16% annually. So, if you have just invested ₹1000 per month in any mutual fund that tracks the NIFTY 50 index, you would have saved ₹60,000, which would have grown up to ₹92,249, and as time passes, the money grows drastically over 10 years that money would double.
Investing early and consistently can help you take advantage of the power of compound interest, diversify your income sources, and achieve your long-term goals.
Now comes the million-dollar question: how do you start investing smartly in India? Here are some tips to help you make the most of your money and time
- Start investing ASAP: The sooner you begin investing, the more time your money has to grow and the less you need to save each month to reach your target amount. If you are 25 and want to retire at 60, invest about ₹10,000 per month in an SIP, assuming a 12% annual return. That money will grow into ₹6.49 Crores, while you would have just invested ₹42 lakhs. That’s a total growth of 1446.49%. However, if you start at 35, your total return will be ₹1.89 Crores. So, just 10 years of difference has shrunk your savings down with such a huge number.
- Invest in yourself: One of the best investments you can make is in your human capital, which is your ability to earn income. You can increase your human capital by acquiring new skills, getting higher education, or pursuing certifications to boost your career prospects. Investing in yourself can help you increase your earning potential, enhance your job security, and open up new opportunities.
- Build an emergency fund: Before investing in the market, you should have a cash reserve covering at least 6 to 12 months of your living expenses. This can help you avoid dipping into your investments or taking on high-interest debt in unexpected emergencies, such as job loss, medical bills, or car repairs. You can keep your emergency fund in a high-interest savings account or a liquid fund that is easily accessible and low-risk.
- Take advantage of tax-saving options: If your employer offers a provident fund, such as EPF or NPS, you should contribute as much as possible, especially if they match your contributions. This can help you save on taxes, grow your money faster, and benefit from compounding. You can also invest in tax-saving instruments, such as ELSS, PPF, or insurance, under Section 80C to reduce your taxable income and save up to Rs 1,50,000 per year.
- Choose low-cost, diversified, and long-term investments: As a young investor, you can afford to take more risk and invest in growth-oriented assets, such as equity and equity funds, that can generate higher returns over time. However, you should diversify your portfolio across different asset classes, sectors, and regions to reduce exposure to market fluctuations and specific risks.
- Avoid Paying High Fees: You should also avoid paying high fees, commissions, or expenses that can affect your returns. Opt for low-cost index funds, exchange-traded funds (ETFs), or robo-advisors that can provide a diversified and balanced portfolio based on your risk tolerance and goals.
- Adopt a long-term perspective: You should also adopt a long-term perspective and avoid chasing short-term trends or timing the market, which can be costly and ineffective. It is natural for you that it might sound like mumbo jumbo, which is why getting help from a financial advisor is highly recommended.
- Review and adjust your portfolio periodically: As you progress in your career and life, your financial situation, goals, and risk appetite may change. You must review your portfolio at least once a year and rebalance it to maintain your desired asset allocation and risk level. You also adjust your portfolio to reflect major life events, such as marriage, divorce, childbirth, or inheritance, and take advantage of opportunities to increase your contributions, such as raises, bonuses, or windfalls.
Investing smartly can help you achieve your financial goals and secure your future. By following these tips, you can start your investment journey on the right foot and make the most of your money and time.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.