How To Start Investing? (Beginners)

Let's simplify things here for a beginner who doesn’t have time to read through multiple books, nor has the capacity to make sense of of those. I would suggest some basic rules that will help you become better at investing right away and make some easy suggestions to evolve from there. Let's start:

1. Know how NOT to lose money: Most investors fall at this level. Knowing the difference between investing and gambling is the first step. Here is a golden rule. Take a look at the benchmark risk free govt bond of your country. Banks will offer about 1% more than that in term deposits (relatively risk free). So anything with a “guaranteed return” of more than that number is a lie. In any major economy of the world, anyone who promises more than 10% guaranteed return is very simply… “a Fraud”.
2. There is nothing called a “good” risk free return: We all love risk free returns. However the closest to risk free return(well almost) is the govt bonds of that country. Anything above that will involve risk, like it or not. Otherwise why would anyone do any other business? Learn to understand risk in every investment. More importantly, understand your risk appetite & start safe.
3. Real Estate is a lazy investment: Sorry guys, buying real estate is not one of the smartest one. Almost everyone can do it to begin with.Secondly you have limited means to analyze its future potential. Finally, it is very lumpy & lazy. Don’t get pulled into this frenzy in the name of “investment” unless you have a very strong conviction on your call.
4. Mutual funds are a good way to start investing in markets: Don’t try to be a tiger from day 1. If you are reading this, you are not an expert in markets. Best is to begin with a mutual fund and spread into 3 or 4 of these, all within the S&P 500 companies. In a few years, you’ll understand if this is working for you and how are you absorbing the volatility involved.

So, i'll discuss about  Mutual funds in this post. Mutual funds are managed by qualified fund managers and once you have picked the right fund, you do not need to do much, except monitoring the fund performance periodically.

As you are a young investor, it is very essential to analyse the above mentioned factors. 

Once you are clear of your goals, know the best Mutual Funds to start investing.

Types of Mutual Funds

Depending on the time of closure, Mutual Funds are divided into 2 major categories—Open Ended or Close Ended.

1.      Open Ended-do not have a specific date when the scheme will be closed

Types of Open Ended Schemes

·         Debt/Income: In a debt/income scheme, a major part of the funds are invested in debentures, gilt funds, government securities and other debt instruments. This is a low-risk return investment option which is ideal for investors with a steady income.

·         Money Market/Liquid: Investors looking to utilise their surplus funds can invest in these short-term investment options, which provide reasonable returns to investors.

·         Equity/Growth Funds: Equity investments are popular forms of Mutual Funds among retail investors. These investments are subject to high-risks in the short term, but investors can expect a high capital appreciation in the long run. If you are looking for long-term benefits and are open to taking risks, growth schemes are ideal investment options for you.

·         Index Scheme: These investments replicate the movement of benchmark indices like Nifty, Sensex, etc. So these investments are made as per the market conditions and movements.

·         Sectoral Scheme: These funds are invested in a specific sector like IT, infrastructure, pharmaceuticals, mining, etc. or segments of the capital market like large-cap, mid-cap, etc.

·         Tax Saving Schemes: As the name clearly suggests, this Mutual Fund scheme offers tax benefits to investors. The funds are generally invested in equities offering long-term growth opportunities. Tax saving Mutual Fund schemes typically have a 3-year lock-in period.

·         Balanced: This Mutual Fund scheme allows investors to enjoy growth and income at regular intervals as the funds are invested in equities and fixed income securities. This is ideal for the cautiously aggressive investor, as they can enjoy good returns and growth options simultaneously.

  2. Close Ended-have a specific tenure

Types of Close-Ended Schemes

You can invest in a close-ended scheme only when it is initially launched. This is known as the New Fund Offer (NFO) period. These Mutual Funds have a fixed period of maturity.

·         Capital Protection: These schemes are mainly aimed at protecting the principal amount while trying to deliver reasonable return to the investors. Funds are invested in high-quality fixed income securities with marginal exposure to equities which have a fixed maturity period.

·         Fixed Maturity Plans: As the name suggests, these are Mutual Fund schemes with a defined maturity period. These schemes do not have any kind of active trading involved and hence the returns are little less when compared to actively managed schemes.

Apart from these open-ended and close-ended schemes, there are Interval Mutual Funds, which operate as a combination of open and close-ended schemes. These schemes allow investors to trade units at pre-defined intervals.

investors to trade units at pre-defined intervals.