Can you become an investor with a small amount of money? No matter how little you have, there is a way to start saving. But where can you invest money to get good returns? Investing money for beginners may seem daunting. However terrifying it may look, learning how to invest money wisely can be learned with a little effort. You can start with any one or all of the following.
1. Savings Bank
A familiar practice among us is to deposit our surplus income in a savings account. The requisite amount to open a savings banks starts as low as 1000 rupees. The bank gives you a small percentage of interest for your deposit. Usually this is around 4% annually. Savings banks deposit is the safest option to save because there is little risk involved of market flux.
However, if you compare the interest rate with interest rates of other investment schemes, it turns out to be way less. As safe as it may be, investors now choose other options such as mutual funds over savings bank for higher returns.
2. Systematic Investment Plan
A Systematic Investment Plan, or SIP is a facility that allows us to invest money in small amounts. An advantage of SIPs are that they can be customized in accordance with our convenience. You can invest any desired amount of money on fixed intervals for a fixed duration. All of these variables are decided by the investor. S/he has complete freedom on those decisions.
Systematic Investment Plan is especially good for investing money for beginners. Since it is automatically deducted at regular intervals without fail, it also helps you achieve financial discipline easily.
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3. Bonds
When you lend money to an institution, they issue a document promising to return your money after a fixed period of time with interest. These are called bonds. Bonds are essentially an assurance to pay back the money borrowed, issued by an institution with credibility. It can either be a government organization or a private entity. An investor is relying on their credentials when they entrust them with money.
Bonds are a good way to start investing as you can begin investing with very little. They give a fair percentage of returns over a period of time.
4. Mutual Funds
Mutual fund investments start as low as 500 rupees nowadays. In 500 rupees mutual funds give you a potpourri of stocks. It is the most diversified investment you can make with a sum this small. This is one among the many reasons behind the surging popularity of mutual funds. Greater diversification makes them less risky than separate stocks.
Also, when you invest in mutual funds, you are outsourcing the work of choosing which stocks to invest in to the fund manager of the mutual fund. This gives you an advantage of having an expert manage your investments for you. Mutual funds come with an option of redeeming your investment at any time you wish.
5. Exchange Traded Funds
Exchange Traded Funds (ETF) are a lot like mutual funds. Both of these consist of a mix of stocks resulting in diversified portfolios. But mutual funds and ETFs are managed differently. Mutual funds are actively managed, which means that the fund managers of mutual fund houses allocate assets within the fund on the basis of price and asset value. ETFs, on the other hand, are passively managed based on the market index. In terms of liquidity, ETFs are bought and sold like stocks. ETFs are affordable and easy to buy. Usually this is done through brokers to whom the investor pays a commission.
Much like mutual funds, one can start investing through ETFs with a small amount of money. There are also various kinds of ETFs based on the sector they are invested in, such as gold, real estate and currency.
No matter what way or method you go for, make sure you have clear investment goals and strategies from the beginning itself. In the longer run, it is not so much the method but the goals that guide you through your investment journey.
