How to start Investing even if you aren’t born Rich ?

Reading Time - 4 mins

Hello Readers,

Hope you are safe and keeping yourself healthy!

Today, I am penning down on a topic - 

How to start Investing even if you aren’t born Rich ?

                

There’s a myth that you need a lot of money to start investing in stocks, mutual funds and Exchange Traded Funds (ETFs).

You can't get rich by either depositing money in bank accounts or keeping in your lockers.

In order to build wealth, you will need to invest your money over time, which will attract the Power of Compounding. I have discussed all about compound interest in my previous blog -  Read here- Compound Interest

Followings are the Investments options in India to get started investing with small amounts of money which can turn out to be big corpus over a period of time -

I will divide the options into two parts on the ground of Risk Profile of an individual :- 

1. High Risk appetite (Jigda) and,
2. Low Risk appetite (Less Jigda)

Option 1 - 4 are for a persons who has (Jigda) and a growth driven mindset with belief on Indian Economy in long run.                                             

1. Direct Equity Investment - All the equity investments carry higher risks and therefore capable of generating very high returns. Opt for an equity investment option if you are comfortable losing as much as 50% of your capital, and we have experienced it in last year. (Credit goes to Covid -19 😭). But somehow, market has outperformed and the last 1-year return of NIFTY is 61.72% (as on today's closing). In last 3 decades, SENSEX in India jumped from 700 to 49,500 levels.  If we would had invested in an index fund in year 2000, CAGR would be 15.25% per annum. It means in last 30 years our principal amount would have got multiplied by >71 times. That's cool. Isn't it? 😎                                                               
2. Mutual Funds - Mutual funds are the most convenient way of investing in the stock markets when you do not have the time and expertise. The equity mutual funds have generated consistently higher returns. The investment in mutual funds can be a lump sum or monthly SIP for an amount as low as Rs. 500. There are several mutual fund houses in india which offers various funds which invests accross various sectors. Mutual Fund House or AMC's charge some fees in return of their services and expertise. The most simple and wise option in MF is to go with Index Funds. It attracts less fees as it only tracks the benchmark and required no tasks or expertise on side of AMC's.                                                                            
3. Exchange Traded Funds (ETF) - An ETF is a fund that can be traded on an exchange like a stock, which means they can be bought and sold throughout the trading day (unlike mutual funds, which are priced at the end of the trading day). Get more details on my another blog specific on ETF.                                                                                                       
4. Initial Public Offer (IPO) - The best part of investing in IPO is that the money gets blocked only for 7 to 15 days. Prudent investment in a good company coming out with IPO can fetch returns as high as 20-100% over a period of time. We have seen several strong IPO's whose listing premium shoot up to 2x or even more. If you have a strong holding for the company for long term, then you should hold for a long period, otherwise you can book quick profit after the listing.

All calculation above doesn't include inflation effect.

Next Option 1 - 4 are for a persons who are conservative and risk averse and want a fixed or guaranteed return with utmost safety of their money.

1. Public Provident Fund (PPF) - Investment in a PPF account can save you a lot of tax. That is because investment in PPF can be claimed as a deduction under section 80C on the IT Act. Further, the accumulated principal and interest amount are also exempt from tax at the time of withdrawal. The current interest rate on PPF is 7.1% compounded annually. PPF is also backed by the government of India and the risk involved is very minimal and it offers guaranteed risk-free returns. We can open PPF account with banks we hold our accounts with. You can open a PPF account with as little as Rs. 100. However, you must deposit a minimum of Rs. 500 in a financial year, and a maximum of Rs. 1,50,000 per financial year.                                                                                    
2. National Pension System (NPS) - NPS is a pension scheme that is portable across jobs and locations. You do not have to change your fund while changing your job or city. The additional benefit is that you get returns from equity and debt investments as compared to PPF where you invest only in the interest-earning instruments. All your contributions up to Rs. 1.5 Lacs into Tier I capital are exempted under section 80C. Approx return per year = 8% to 10%, Years taken to double the investment = 7.2 to 9 years.                                                                                        
3. Fixed Deposit - Fixed deposits are investment schemes offered by banks and NBFCs wherein investors put (deposit) their idle money in exchange for guaranteed fixed returns at maturity. The returns (in the form of interest) from fixed deposits are usually higher than those of a savings bank account. The tenure of fixed deposits can range from 7 days to 10 years (20 years in some cases). The rate of interest varies from banks to banks. The interest rates for senior citizens are usually 0.25% to 0.65% higher than the standard rates.                                                                                                                                                   
4. Post office saving schemes -  Post Office Savings schemes are investments offered by India Post/Department of Posts (DoP)—a postal system operated by the government. These investments are known for their attractive interest rates and tax benefits. But what sets them apart from most other investments is the sovereign guarantee that they have. Meaning, Post Office Savings avenues are backed by the government, which makes them safe avenues. To know more, you can check an article published by Tickertape.

There are definitely many more options to invest your money starting with a nominal amount. I will cover in my upcoming blogs.

*Habit of regular savings and Investing can lead to more financial independency at your later stages of life.

There are plenty of ways to start investing with little money, with many online and app-based platforms making it easier than ever. All you have to do is start somewhere. Once you do, it will get easier as time goes on, and your future self will love you for it.

THE FIRST STEP IN LEARNIG TO INVEST IS TO LEARN TO SAVE.

(I can officially give advices on Investments as I hold a certificate from SEBI for Investment Advisor - L1)

Hope you all like this blog !

Please let me know in the comments if you have some query regarding the discussion. 

Also, if you are interested to get more such blogs on topics related to Money and Finance, please let me know in the comments. 

Enjoy reading!

Signing off.....

Ayush Garg

FinDost - A simple way to understand money!

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