The NSE, or the National Stock Exchange of India, had a market capitalization of around $2.27 trillion in 2018. Although this figure may seem impressive, it made NSE only the eleventh largest stock exchange in the world. While the number of investors has been growing steadily, rising from a mere 17 lakh new investors in fiscal 2009 to 28 lakhs in fiscal 2019, many chose fixed deposits over mutual funds only due to lack of awareness.
Investing is an important part of financial planning and the earlier one starts, the lower is the burden. Starting early is probably among the most important savings tips. So, if you are thinking about saving and investment, here are some tips to help you make more informed decisions.
Investment Tips to Get You Started
Tip 1: Determine Your Financial Goals
Your financial needs constitute the beginning and end of all savings and investment tips.These will be the basis of your financial decisions, and all your efforts should end in their achievement. Your financial goals should encompass your responsibilities as well as things you really love to do. These may include your children’s education and marriage, retirement planning, buying a home and going for a foreign trip. Putting down your goals helps determine your wealth creation needs and inspires you to be more disciplined about saving and investing regularly.
Tip 2: Know Your Risk Appetite
Investments may vary in terms of their risk-reward ratio. Certain instruments, like fixed deposits, give assured returns. Other instruments like mutual funds offer the potential of much higher returns, albeit at a higher risk. Depending on your risk appetite, you can determine how much funds you wish to contribute to each of these. Your risk appetite would depend on your earnings (salary and other income), expenses and liabilities (like home and car loans).
Tip 3: Diversify Your Portfolio
This is among the best investment tips. Putting all your eggs into one basket could lower your earning potential and increase the risk. Although you can try to diversify your portfolio by putting funds into fixed deposits, stocks and other financial instruments, opting for mutual funds can offer more diversification. Mutual funds invest your money into a wide range of debt and equity instruments. Also, since these are professionally managed, you don’t need to constantly stay in touch with the market and make buying and selling decisions. Depending on your risk appetite, you can choose between debt funds and equity funds. Do check out hybrid funds as well.
Tip 4: Make Regular Deposits
Rather than making lump sum contributions to your investments, consider making regular deposits. This will distribute the burden of saving, build discipline and give you visibility to plan other expenses. You can choose a recurring fixed deposit. In case of mutual funds, opt for SIPs (systematic investment plans), as they allow you to make small regular investments. They also offer the advantage of rupee cost averaging.
Tip 5: Think About Tax Saving
Proper tax planning can save you a significant amount of money. Choose investment options that offer you tax deductions, like ELSS, PPF, five-year fixed deposits and NSC provide tax deduction under section 80C of the Income Tax Act.
By following these savingsand investment tips, you can work towards making your financial future more stress-free.