Investing 101: A Beginner’s Guide to Building Wealth

By | January 18, 2024

Wanna know how to turn your pocket change into a fortune? Investing is the way to go and this article is all you need to get started.

Gone are the days of investing and saving money being the same thing. These days, investing is a different ball game altogether. Understanding its intricacies and diversity can be daunting for beginners. In this article, we will cover everything a beginner investor must know about investing in India, including the different types of investments, how to create an investment portfolio, and tips for managing risk. 

What is Investing? 

Let’s get that out of the way first. Investing is the process of allocating funds in various financial instruments to generate income or profit over time. It’s all about making your money work for you, creating additional wealth without direct effort on your part. Much like a Credit Card that generates cashback and rewards on every rupee spent. In India, you can embark on your investment journey with as little as ₹100. The key is to understand the fundamentals of investing and set clear financial goals. 

Why Should You Invest? 

Investing helps you outpace inflation, thus preserving or increasing your purchasing power. India recorded a 5-6% annual rate of inflation in the last decade. Your regular savings account with a 6-7% interest rate simply won’t cut it. Proper investment in other investment vehicles can, therefore, help in wealth creation. With strategic planning and patience, investments can yield significant returns. When you reinvest these returns, you earn more, thus creating a snowball effect for your wealth. 

When Should You Start Investing? 

Start as early as possible! The earlier you start, the more time your money has to grow. Such is the power of compounding. You earn interest on the principal amount, and you earn interest on the accrued interest as well. Isn’t that something? Basically, your money grows much faster when you reinvest your earnings. So, the longer you invest, the longer your money can compound and grow. 

Types of Investments 

There are several types of investment options available in India. Listing out all of them would be a herculean task. So, here are the most popular ones: 

  • Stocks: Stocks are shares of ownership in a company. When you buy a stock, you become a shareholder in that company. The value of your investment will rise or fall depending on the performance of the company. With penny stocks that trade at ₹10- ₹50 per share to stocks that trade above ₹1,00,000 per share, you can employ a wide variety of trading strategies to reap profits in the stock market. Having said that, it is your duty to do due diligence on the stock market as more than 90% of traders in India lose money or are unprofitable.  
  • Mutual Funds: Mutual funds are a type of investment where your money is pooled with other investors to buy a collection of stocks, bonds, or other securities. Mutual funds are managed by professional fund managers who invest the money in a diversified portfolio of assets. As a result, there is no investment instrument that is as beginner friendly as them. Also, did we mention that unlike stock trading, you do not require a DEMAT account to start investing in mutual funds? 
  • Fixed Deposits: The OG, the flex of our yester generations, the founding forefather of investing instruments in India, fixed deposits are still going strong and haven’t lost their sheen a bit. It is a type of investment where you deposit a lumpsum amount with a bank or financial institution for a fixed period. The bank pays you a fixed rate of interest on your deposit, and that is it. It is the safest investment option out there as the return rate on an FD does not fluctuate over time. 
  • Real Estate: As you already know, real estate involves purchasing a property/plot of land with the intention of earning a return on your investment. It might not be the ideal investment option for someone starting off their investment journey because of the huge capital involved. But if you are that lucky guy who owns a plot at a prime location or recently inherited a mansion passed on to you by some long-lost uncle, you must put it to good use. Rent it, sell it, but do not let it go to waste.

These are some of the most popular avenues for investment but mind you, we have barely scratched the surface. Once you go deeper, you will be amazed by the sheer diversity of investment options – Public Provident Funds (PPF), National Pension Scheme (NPS), Sovereign Gold Bonds (SGBs), Unit-linked Insurance Plans (ULIPs), Gold Exchange-Traded Funds (ETFs) to name a few. Happy exploring!

Additional Reading: How To Start Investing In The Stock Market

How to Create an Investment Portfolio? 

Whatever your goal – a car, a home, children’s education, funding your own biopic – you must select the right mix of investments to make money. Your investment portfolio is just that, the collection of different asset classes into which you put your hard-earned money to achieve your goals. Here are some tips for creating a good investment portfolio: 

  • #1 – Diversification is the process of spreading your investments across different asset classes. This helps to reduce your risk and increase your returns. A big chunk in mutual funds, a small pinch of gold, and a generous serving of real estate… No matter how you break it down, variety is a must! 
  • #2 – Set clear financial goals for yourself. This will help you determine the right mix of investments to boost your portfolio. A car in the next 2 years and a home in the next 20 call for two starkly different approaches to investing. So, take your time and set your goals wisely. 
  • #3 – Invest regularly to take advantage of the power of compounding. Be consistent and never skip your investment contributions to accommodate those impulse buys. Monitor your investments just like you track your Credit Score regularly, period! 

Additional Reading: Ridiculously Easy Investment Plans For Every Budget 

Tips for Managing Risk 

Market-led Investing always involves some degree of risk. We know your impulse to invest in the most volatile markets, throw caution to the wind and splash your cash as if you were in one of those Vegas casinos. That is exactly why you must read these tips: 

  • #1 Do your research before investing in any asset. Read as much as possible, do not let that clickbait article with fancy numbers be your reason to invest in any asset.
  • #2 Invest for the long-term! It prepares you for those big expenses (children’s education, new home etc.) in life and lessens the anxiety caused by day-to-day market fluctuations.
  • #3 Put your money in quality assets that have a proven track record of performance. Look for metrics like historical returns, profitability, expense ratio and more. 

That’s it. Pat on your back, grab the backpack and off you go into the investment wilderness. But before you leave, don’t forget to check our lifetime-free Credit Card offers. With rewards and cashbacks on all your spends, it can surely add more firepower to your arsenal of investments! 

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