It is very important to know the basics of Investment before starting one. For a beginner, these investment basics work like a light-house. It will show you the direction to reach your desired goal. People delay their Investment because they do not know where to start and they keep researching. These Investment basics for beginners are rules; if an amateur follows them, he can excel and get the best possible returns on his Investments.
So let’s start with the investment basics for beginners, which will include significant pain points of an individual, like what Investment is, its types, and how to get started. This process will focus more on building one’s investment capabilities than depending on others to make the right decisions.
Introduction to Investment
Investment is buying assets or any item to generate a return in the face of money. This generated return can be “regular income “or “Capital recognition.” Now you may have a question: why buy assets? Because keeping money to yourself will only result in no returns.
Your money in the bank will also generate only a 3.5 % to 4% return. If people want a high return, they should start investing their money. Investments have the potential to generate higher returns. By investing money, one puts their money to work, which will ultimately generate higher returns.
Why invest money?
Investment is necessary to take care of your future needs. But someone may ask, why do I need to invest money? Can’t savings be enough to take care of our future needs? Savings are good but not sufficient.
Let’s take an example; suppose you have to pay a monthly EMI to repay the loan of Rs 10 Lakh for purchasing your home. If you have planned to keep your savings frozen in your account, earning 3.5% will let you save Rs 15,300 per month to accumulate Rs 10 Lakh in 5 years. But If you have decided to invest in a multi-cap fund that may generate a high return of 10 to 12%, you must invest Rs 12500 to 13000 per month to accumulate 10 Lakhs in 5 years. The SIP Calculator does these calculations to check the monthly Investment required to accumulate any loan/debt.
Where to Invest?
After learning about the investment basics and the benefits of Investment, it’s time to start investing. But from where to start? There are several investment options available for the ordinary person, but just knowing the names of investment options is not enough. As an investor, you must understand how to invest money wisely. What do we mean by wisely? It means utilizing the correct investment options to find the best risk-return balance for you. Here are some of the best options for you:-
- Stocks:- Investing in the stock market allows you to earn the highest return among any other investment option available. However, to invest in the stock market, you need to have market knowledge. Investing in the stock market with no knowledge is as bad as gambling.
- Mutual Funds:- This is the most preferred option for beginners. Investing in mutual funds, unlike direct stocks, does not require you to be an expert. In this option, the investor needs to invest their money without thinking about the details like when to sell the stock, etc. The fund manager takes care of these activities and will take some money in return. Many middle-class families prefer to invest in this option.
- Debt Fund:- Debt funds generally invest in securities that generate a fixed income, like treasury bills, commercial paper, and government securities. All these sectors have pre-decided maturity dates and interest rates that the buyer can earn on maturity. Debt funds are ideal for investors who aim for regular income. These options may be less risky but offer a lower return than stock and Mutual funds.
- REITs:- In this investment option, anyone can invest in the real estate sector at a meager cost without buying, managing, or financing those properties themselves. REITs invest in most real estate properties like office spaces, malls, etc.
- Physical Real Estate:- Physical real estate is an option for people with high disposable capital who want to make the most of it. It includes physical properties like land, apartments, flats, etc. It’s better to avoid investing in a property with home loan funding.
It is necessary to clear all your doubts and myths before investing your money.
One of the most prevalent myths about investment is that you need a good amount of money to start, but the fact is that you can start investments with mere 500 rupees. So keep these investment basics in mind and proceed with your investment journey. Have a happy Investing.
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