How to Invest Money? Investing your money is the most reliable way to make money over time. Because Investing your money is as important as earning an income.
When it comes to figuring out how to invest money, it is best to start with the basics. I am sure any financial advisor would agree with this.
These basics include setting your investment goals and determining where to invest money to achieve each goal. What Is an ETF?
Prudent investments help in securing your life financially by achieving your financial goals for the present and future.
Investing helps you generate a parallel stream of income, create more wealth and earn returns to beat inflation. This ensures that you live a comfortable life even after retirement when your regular income stops.
Investing Money for Beginners
The list of investment avenues described above is relatively exhaustive. However, these may not be suitable for all investors.
It is difficult for a beginner to invest money if you are not conversant with the specifics of the path of investment.
It makes sense to limit your investment to insurance-related financial instruments, mutual funds and fixed deposits, PPF, and small savings accounts.
When you invest money, what you are doing is either buying a part of the company or buying a commodity in the belief that the value of that company or commodity will increase over time.
Before you put your hard-earned money into an investment vehicle, you must have a basic understanding of how it works.
Best ways to Invest Money
Insurance plans
These tools are excellent for young beginners with a stable source of income. You can go for pure protection schemes like term insurance which provides financial cover to your family in case of your unfortunate premature death.
Another option is to go for plans that combine savings with insurance, such as a unit-linked insurance plan (ULIP). Other insurance plans include health plans, critical illness plans, and contingency insurance plans.
Mutual funds
Mutual funds are a trendy investment avenue among early investors. it gives you the advantage of investing indirectly in the stock markets through the expertise of professional managers.
Being busy with your job, profession, or business, you may not have time to follow the stock market and make any direct investment. This is where mutual funds come into play.
You have several options such as equity mutual funds, debt mutual funds, balanced funds, and other such instruments.
However, You also have plans that offer dividend income or growth options. You can choose based on your financial goals and risk-taking abilities.
Instead of buying a single stock, a mutual fund enables you to buy a basket of stock in one purchase. Mutual fund shares are usually selected and managed by the mutual fund manager.
These types of funds enable you to invest in a broad portfolio of stocks and bonds in one transaction rather than trading them all.
These mutual fund managers charge a percentage based fee when you invest in your mutual fund.
The Stock Market
The most common and arguably most beneficial place for an investor to invest his money is in the stock market.
It is important not to fear the stock market, it is actually one of the best places to raise your money.
Stocks are investing in the future success of a company. When you invest in a company’s stock, you make a profit with them.
When you buy a stock, you will own a small part of the company that you bought.
Therefore, When the company makes a profit, they can pay you a portion of those profits in dividends, based on how much stock you own.
When the value of the company increases over time, price the shares yourself, which means you can sell them at a later date for a profit.
Investment Bonds
When you buy a bond, you are essentially lending money to a company or government.
The government or company that sells the bond to you will then pay you interest on the “loan” over the lifecycle of the bond.
Just as for most people, companies, and municipalities, borrowing money is a part of life, in the same way, using bonds also borrow money.
Bonds are generally considered ‘less risky’ than stocks, however, their potential for returns is very low.
Real Estate
Real estate investment is a way to great earnings – even makes millions.
Investing in real estate is a long-term investment that investors invest for cash flow.
Cash flow will also increase over time as rents will increase with inflation while your mortgage payments remain the same.
Fixed deposits, Provident Fund (PF) and small savings
Fixed deposits, provident funds (PFs), and small savings accounts are safe instruments to provide moderate returns.
These provide better liquidity and protection. If you are a salaried person, you can opt for voluntary PF in addition to employee PF. Small savings schemes are suitable for beginners to earn a good income too.
Tax Benefits
Various investment avenues provide tax benefits. It is necessary for you to evaluate the tradeoff between tax benefits and returns while investing.
Investing money in India is not as difficult if you follow the tips to invest the money mentioned above. Remember that the prudent approach is to understand the investment and start early.
Savings Accounts
By far, the least risky way to invest your money (and probably the worst way) is to put it in a savings account and allow it to accumulate interest.
However, as is usually the case, lower risk means lower returns. When putting your money in a savings account, the risk is negligible, and usually, there is no return.
Still, savings accounts play a role in investing because they allow you to stock risk-free cash that you can use to buy other investments or to use in emergencies so that you don’t touch your other investments.
Types of Investments in India
Today’s India is a part of financial activities, offering a wide variety of investment opportunities, covering a broad spectrum of investment avenues.
- Insurance plans
- Mutual funds
- Fixed deposits, Public Provident Fund (PPF), and small savings accounts
- Real estate
- Stock market
- Commodities
- Derivatives and foreign exchange
- A new class of assets
Each of these investment amounts has its own characteristics and it is up to you to decide where to invest money and use these amounts to achieve your financial goals.
When you do this, keep in mind your need for liquidity, wealth creation, parallel sources of income, protection of capital, and life insurance.
Bottom line
Investing money can seem intimidating, especially if you’ve never done it before. However, if you figure out how you want to invest, how much money you should invest, and your risk tolerance, you will be well-positioned to make smart decisions with your money that will be yours for decades to come.
READ ALSO : What Is a Portfolio? And How to Build a Portfolio