Investing is an act of putting Monet, Effort & Time to get a profit or advantage. It involves allocating money to assets like stocks, bonds, real estate, or mutual funds with the expectation of generating income or profit over time.
If you’re wondering, how to start investing? Let’s get to the following 5 steps guide for investing:
- Analysis about idle funds you can spare for investing
- Investment Goals
- Investment Strategy
- Funds to invest
- How compounding plays an inevitable role
Steps to start Investing for beginners
To start investing, follow these steps:
Analysis about idle funds you can spare for investing
Before start investing in market or any fund the investor should make an analysis of the idle funds that the investor has after keeping aside the expenses for daily needs. It is the most important thing for investor to first analyze its position of funds. The market is full of risk so the first thing for investor is to keep an eye on its capital and keep it intact. For retail investors the capital is very important, if you are able to keep your capital safe you will get decent returns from the market.
Now let’s get to the second step which is investment goals.
Investment Goals
For any investor who wants to get invested in the capital market it’s very important to decide the goals of investment. Goals define the purpose for which you are doing investment i.e.
- Retirement plans
- Child education
- Travelling purpose
The goals are defined as short term plans and long-term plans:
- Short Term Plans
The short-term plans for any investor are for duration of 2 to 3 years. This duration looks as a long-term plan but in market this is consider as a short-term plan. - Long Term Plans
The long-term plan for any investor is of duration from anywhere 12 years to infinity. The most beneficial factor in long term plan for any investor is of compounding that we will discuss in the later part.
Investment Strategy
Here comes the most important part of your investment.
The first thing that comes into the mind of investor is how to get invested and their comes the part of Demat account. You can get demat account from any broker, there are many brokers available in the current scenario of the market.
After getting your demat account and completing the KYC, you can start investing.
The investment strategy is always in link with your investment goals.
The investor should be risk averse in the first 2 to 3 years, as said earlier investor should keep its capital safe and intact by not getting invested into some scam or forged funds.
The strategy should always be to get invested into debt funds which carries less risk and some part of the funds should be invested in market funds i.e. Equity.
The locations of fund should be 50:50 in debt funds and also in equities to get desired returns without putting your capital at risk and keep your capital safe.
Funds to invest
Fixed Deposits
Fixed Deposit (FD) is making a secured investment of substantial amount for a specified period with guaranteed rate of interest.
Bonds
Bonds are fixed-income securities in which investors lend money to firms or governments in return for regular interest payments and the principal amount returned when the bond matures.
Mutual Funds
Mutual Funds (MFs) are investments that combine the capital of several participants to buy a diverse portfolio of stocks, bonds, and also other securities under experts’ guidance.
Exchange Traded Funds
ETFs are exchange traded funds that trade on stock exchanges in a manner similar to that of individual stocks. They provide investors with the advantages of liquidity, reduced costs, and also diversification by holding a diverse portfolio of assets, including stocks, bonds, and commodities.
Stocks
Equities, also referred to as shares or stocks, are ownership stakes in a business. Purchasing stocks on the stock exchange gives you ownership of a part of the company as well as the potential to receive dividend payments from its profits.
How compounding plays an inevitable role?
No let’s get to the most interesting part of investing, the role compounding plays is of pure Joy for investors. But for that the customer should be invest long in the market. Now let’s get to an example to show how compounding works.
Such as, you have invested Principal amount of ₹1 lakh in the beginning, so after a period of 12 – 15 years the investor would enjoy a return of same as principal amount every year after completion of 15 years.
That’s how compounding works.