Investing in today’s rapidly evolving financial landscape can seem daunting, especially for beginners. However, as India enters a promising growth phase, aligning your personal investments with the country’s economic trajectory can offer significant opportunities.
This article, “Investing 101 for Beginners,” will walk you through the fundamentals of investing, emphasizing why investing is crucial for building wealth and securing your financial future. We will explore various investment options available in the market, from traditional avenues like fixed deposits and mutual funds to emerging trends in stocks and real estate, helping you make informed decisions tailored to your financial goals.
If you are curious to learn about investments, then you are at the right place.
What is Investing?
Investing is the process of allocating money or resources with the expectation of generating income or profit over time.
Most people want to invest but don’t know how or where to invest.
There are several categories to invest in.
Equity: Whenever someone talks about investments, the first thing that comes to mind is stocks. Stocks – also known as shares or equities – are one of the most well-known financial instruments.
Equity refers to ownership in a business. When you buy shares of a company, you become a part-owner and can benefit from the company’s growth and profitability.
Investing in the stocks of publicly listed companies offers the possibility of higher returns over the long term. Indian stock markets, represented by indices such as the Nifty 50 and the Sensex, attract domestic and international investors seeking growth opportunities. Investing in stocks is suitable for those willing to accept high volatility for the prospect of earning capital.
Mutual Funds: Mutual funds pool money from multiple investors to invest in diversified portfolios of stocks, bonds, or other securities. They are managed by professional fund managers.
There are different types of mutual funds, including equity funds, debt funds, hybrid funds, and index funds, each catering to different investment goals and risk levels.
A diversified equity mutual fund might invest in a range of companies across different sectors, while a debt mutual fund would focus on fixed income securities like government and corporate bonds.
Also, know the difference between direct mutual funds and regular mutual funds before you invest in them.
Real Estate: Real estate investment involves purchasing property for income generation or capital appreciation. This can include residential, commercial, or industrial properties.
Indians usually believe real estate is a safer investment, and it is often seen as a matter of pride.
Real estate can provide steady rental income and long-term value appreciation, although it requires significant initial capital and carries market risk.
Gold: Indians have a special love and attention for gold. Women all over the world love gold, and most men love gold.
Investing in gold and other precious metals involves purchasing physical gold, gold ETFs, or sovereign gold bonds issued by the government.
Gold holds cultural and economic significance in India, serving as a store of value and a hedge against inflation.
Fixed Income Instruments: Fixed income instruments include bonds, fixed deposits, and debt mutual funds that provide regular interest payments and return of principal upon maturity.
Government and corporate bonds, fixed deposits, and debt mutual funds provide stable returns with lower risk compared to equities.
Fixed income investments are less volatile and provide predictable returns, making them suitable for risk-averse individuals.
Investing in government securities like the Public Provident Fund (PPF), National Savings Certificates (NSC), or corporate bonds issued by reputable companies can offer steady returns with minimal risk.
Alternative Investments: Alternative investments encompass a broad range of assets beyond traditional stocks and bonds, including private equity, hedge funds, commodities, and cryptocurrencies.
Alternative investments can offer diversification benefits and the potential for high returns but also come with higher risks and lower liquidity.
These investments require thorough research and understanding due to their complex nature.
Investing in a private equity fund, buying commodities like oil or agricultural products, or trading in cryptocurrencies like Bitcoin and Ethereum are examples of alternative investments.
This is an overview of the investing world. However, investing involves a lot of parameters to be considered.
Why do we need to invest?
The real power of money can be understood when it is allowed to compound.
It is not an unrealistic dream to say that you want to make money while you sleep. This is what long-term investing, and the power of compounding can do.
Investing is an important component of financial planning and wealth creation. While saving money in a bank account provides safety and liquidity, investing offers the potential for higher returns, which is essential for achieving long-term goals.
As we discussed in the beginning, there is a lot of diversified population in the country, and their financial status, needs, and goals change accordingly.
There are several reasons why we should consider investing:
Wealth creation: Investing in equities, real estate, and mutual funds allows the investor’s money to grow over time. Saving in your bank account will give limited interest, but investments have the potential to grow in the future. Higher returns come from capital appreciation or compounding.
Compounding is a huge concept. Simply put, it is the process where the returns earned on investment are reinvested to generate additional earnings.
For example, if you invest ₹10,000 annually at an 8% annual return, after 20 years, your investment will grow to approximately ₹4,66,000, which shows the power of compounding.
Inflation-beating returns: Inflation is like a slow poison that reduces the purchasing power of your money over time. If your money is sitting idle or earning lower interest, it will lose value due to inflation.
Let me make it easier: you have ₹100,000 with you and bought a bike in 2022. Two years later, your father gives you ₹100,000 and wants to buy a bike for your younger brother with that amount.
He has never invested that amount, and it has been sitting idle in a locker for the last two years. By the time he gives you the money, the price of the bike has increased due to inflation. The components used in the bike have become more expensive, increasing overall production costs and leading to a higher bike price.
So, what happened? The amount remained the same, and the bikes remained the same, but due to inflation, prices increased, reducing purchasing power.
If he had invested in an asset that could give returns that beat inflation, he would have been able to buy the bike.
Achieving Financial Goals: Investing plays a crucial role in helping individuals achieve their financial goals. Whether your objectives are short-term, medium-term, or long-term, making smart investment choices can help you reach them more effectively.
Financial goals can vary based on a person’s needs.
Whether it is for education, marriage, retirement, or a vacation, investing helps in realizing these goals.
Investing is a crucial part of financial planning and wealth creation, helping individuals achieve their financial goals and secure their future. However, navigating the complex world of investments can be challenging without the right guidance and expertise. This is where Savart, a SEBI-registered investment advisor, comes in.
Savart stands out for its comprehensive and personalized approach to investment advisory. By leveraging cutting-edge technology and deep market insights, Savart helps you make informed decisions tailored to your financial goals, risk tolerance, and investment horizon. Whether you’re looking to invest in equities, mutual funds, real estate, gold, fixed income instruments, or alternative investments, Savart provides the expertise and support you need to maximize your returns while managing risks effectively.
If you want to learn about fundamentals of portfolio creation and investment management, check out the 6-weeks comprehensive live course from Nirvana By Savart. Nirvana By Savart is an initiative to help Indians achieve financial Nirvana.