Designing a roadmap to accumulate wealth for the future is very important, especially in your 20s or 30s. To achieve this goal, it is highly recommended that you start investing as soon as you start earning regularly.
Many young people jump into investment by seeking advice from their friends and family members who have been investing for quite some time. Though this does not directly harm you, we suggest you adopt a systematic and regular approach to steadily create a substantial corpus. In this blog, we will walk you through some of the best investments for beginners that are a no-brainer.
What Are the Best Investment Ideas for Beginners?
The greatest boon for young people seeking wealth is their ability to leverage a long-term investment horizon to yield high returns. As of now, some good investments for beginners with little money have been discussed below:
Fixed Deposits
Fixed deposits are accounts accepted by banks and other financial institutions that agree to pay fixed interest returns on the principal deposited for a predetermined period. If you are a beginner investor with a lump sum spare amount, then it is one of the best investment options as the returns are guaranteed.
The interest rate for this investment is set when you open an FD and stays the same until the end. Typically, the tenure of these accounts ranges from 7 days to 10 years. A person can select the timeframe for investment based on their specific financial goals. Some banks let the account holders take out their money early with a penalty.
ULIPs
Unit Linked Investment Plans (ULIPs) are another great option if you are searching for top investments for beginners. These savings schemes come with a lock-in period of 5 years and are unique in the sense that they offer life cover in addition to investment returns.
Through ULIPs, you can allocate a part of your premium towards life insurance and the rest is utilised to purchase market-linked assets of your preference. Hence, the performance of these investments directly relies on the policyholder.
Additionally, you are eligible for tax advantages on the premium paid towards the scheme as per Section 80C of the Income Tax Act, 1961.
Mutual Funds
Choosing the right securities in the stock market can be increasingly challenging for beginners who have limited knowledge about investment strategies. Therefore, they can invest in mutual funds as these are relatively safer compared to direct equity. Here, your investments are monitored round the clock by expert fund managers who consistently balance a basket of stocks to manage the overall risk.
This way, mutual funds can offer you considerable returns in the long run provided you conduct a little research before putting your hard-earned money in these funds.
National Pension Scheme (NPS)
If you are aiming to begin your retirement planning from the outset of your career, the National Pension Scheme is an excellent investment option. In the later years, you can notice exponential growth of your corpus under this scheme. The plan offers two investment methods to choose from: an Auto Choice and an Active Choice.
If you choose the Auto Choice option, your regular contributions are proportionally distributed among government securities, equities and non-government debts, the three available asset classes, depending on your age. However, in the Active Choice option, you can manually set allocation limits for each asset class.
Note: A minimum of ₹6,000 must be deposited annually to keep your NPS account active.
Public Provident Fund (PPF)
For complete investment beginners seeking low-risk investment avenues, a long-term game changer would be their PPF account. They offer steady and fixed returns, tax advantages under Section 80C and highly competitive interest rates. Moreover, upon maturity after 15 years, you do not need to pay tax on your interest earnings via the PPF account.
Besides banks, post offices also provide PPF accounts. An individual can open only one PPF account which they can extend in blocks of 5 years after completing a 15-year tenure.
Important Considerations for New Investors to Start Smart Investing
By applying the following straightforward tips, you can emerge as a successful investor at a young age. Let’s learn about these proven tactics:
Start Early
When you successfully begin your investments in the early or mid-20s and stay consistent, you can realise the true power of compounding. Even when you fail to put a lot of money into your investments at a young age, still the returns come out as huge as the money works for itself. However, regardless of age, it is never too late to start investing.
Invest Consistently
Sporadic investments do not lead to the desired results. Also, there are no known shortcuts for generating wealth. Therefore, financial discipline is a must where you must put aside a set amount every quarter or month to see your income grow.
Historically, the longer you stay invested, the less likely your portfolio is to decline. Conversely, you experience significant growth due to the compounding effect.
Build a Well-diversified Portfolio
While it is possible to invest entirely in a single asset class or investment plan, it is never advisable to do so. This is because if things take a turn for the worse, there is a significant risk of losing a substantial portion of your wealth.
Thus, you should always look to diversify your investments and mitigate risk. For this, you can invest across FDs, mutual funds, gold, bonds, stocks, etc. It will provide you with a natural hedge against potential market downturns.
Do Not Blindly Chase Higher Returns
Many people confuse successful investing with achieving the highest possible returns over a short period. It is a completely wrong approach that invites unwanted risks. As a beginner, your goal must be to focus primarily on steady investment instruments that carry little to no risk.
Final Word
To secure financial stability by one’s 40s, it is crucial to start planning and finding steady avenues of investments for beginners. It facilitates robust financial management and instils a sense of self-discipline which is indispensable to fulfil all types of financial goals.
