Beginners: Ideas for Investing

Hello young friends,

Fresh out of college or may be an year into the job – the main worries that strikes all youngsters is what to do with their salaries? Where to invest this hard earned money? How to grow this money? it looks like a swelling bank account now and even spending for all activities makes the balance rise in accounts.

The answers to these questions are simple. It’s nothing  like I am gonna open a Pandora’s Box / look through the Crystal Gaze and tell you these. Ideas I am trying to elaborate in this post are simple and yet would be good steps to start with.

Let’s take the simplest idea and then move a step higher:

1. FIXED DEPOSIT / RECURRING DEPOSIT (FD/RD):

The simplest investment instrument of all – you can put in Lump Sum money (FD) or a monthly deposit (RD). It would give you a Fixed Return of 7 to 9% depending on bank to bank. What you need to do is just fill in a form and the amount will be one time / regularly debited from your Savings account and deposited in your  FD / RD Account. You can now a days also do this online.

The limitations with this instruments are they leave a very less scope to bit the inflation which on an average is around 7% (currently its low). So difference between the Interest earned and inflation is your benefit.

Moving ahead our next instrument is:

2. LIC POLICY / ULIPS:

Another of the most age old and broker recommended instrument. What it does is take a premium from you and allocates – certain amount to insurance and certain amount to equity investments.

The limitations here are they do not do justice to either investment / insurance. As allocated premiums are low – they neither provide adequate insurance cover nor returns.

Personally I recommend to keep the insurance and investments separate. You can go for a Term Insurance Plan – it does not give any returns but it give a huge insurance coverage. Advantage to go for term plan at young age is astonishingly low premium for high coverage.

3. VOLUNTARY PF:

This is our Regular ePF which company debits from your salary. Quite few people are aware that you can actually increase your PF contribution (it’s a certain percentage of Basic). The best long term investment. You can approach the HR of the company and ask them to deposit the voluntary contribution to PF. This is tax exempt as per your regular tax slabs.

Best is to keep adding VPF contribution on ever salary rise

4. PPF:

Another instrument is PPF – we can open the PPF account in designated banks and post office. This is again a safe instrument which will give you moderate returns of 7 to 9%. You can just keep contributing a certain amount to this instrument.

5. MUTUAL FUNDS:

This is a good investment instrument, personally I like this one. It gives mediocre returns – lesser compared to direct equity but higher than above both. This can be done with 2 routes – Lumpsum / SIP (Systematic Investment Plan).

How MF Works?

They take your investment amounts and there experienced fund managers invest into different equities as per the investment plan of the MF. The best part is it gives returns aligned to stock market. For beginners the advantage is they do not need to track the MF’s as frequently as you would need to track the stocks.

Investing instruments is a vast topic and even above mentioned are just tips of iceberg. I have kept this post purposefully concise and limited just to introduction of these instruments.

Please feel free to like and comment your views on the same.