You don’t need a lot of money to start off investing with. There are, however, various investment options available starting at an amount as low as Rs. 500. It all varies depending upon the duration of your goal. The following steps can help you invest when you have limited funds:
Financial planning is one of the most under-spoken topics of the decade. Though the investment opportunity is vast but financial literacy is still left aloof. There are a number of options available but the options largely depend upon your risk appetite and your goal of an investment. Investment is never a get rich quick scheme that people are selling today. It is a way to grow your wealth consistently with the power of compounding and you must learn the basics first.
Thankfully, these days, you don’t need a lot of money to start off investing with. There are, however, various investment options available starting at an amount as low as Rs. 500. It all varies depending upon the duration of your goal. The following steps can help you invest when you have limited funds:
What is Investing?
Investing is the process by which the money which is usually kept aside as savings can be put into financial schemes, property, shares, or commercial ventures to earn profits. Hence, investing is directly proportional to saving. The more you save, the more you can invest. You can inculcate various methods to save up money. Methods like preparation of budgets, proactive usage of discount coupons and offers, etc. have proved to be extremely useful.
First things first! Before deciding on an investment, you must first know what exactly investing is. Primarily, investing means either buying a stock/share of a company or buying a commodity with a motive of growing it with time.
Though investing is said to be a way to grow your wealth, you need not be a millionaire to start investing. You can start investing right after you get rid of any major liability like a high-interest debt. The power of compounding does wonders to even a small sum of money and can turn it into a fortune if you choose the right investment plan.
Discover a bank that gives the highest interest on your savings account
Here comes the least risky mode of investment and probably with the least return on investment too. Saving accounts can get a nominal interest in the deposited amount. It will a better option to invest when it comes to, well, not investing! The risk with a savings account is almost negligible but in most cases, low risk is equal to low returns.
However, saving accounts plays a very important role in saving and investing. It allows you to the stock risk-free sum of money that can be used in an emergency so you do not touch your investment otherwise.
The majority of us tend to overlook the fact that if we maintain the minimum balance required throughout the year, the bank pays us an interest. This interest varies from bank to bank. Since the interest is paid on the amount maintained throughout the year, the more your savings, the higher would be the returns. This is the easiest and most basic form of investment. Moreover, there is zero degrees of risk involved.
Mobile Applications: GROWW & ET Money
GROWW and ET Money are two user- friendly mobile applications which enable investments in Systematic Investment Plans (SIPs). It’s extremely easy to link your bank account to these apps and there have been no scams involved in either one of them. Moreover, these apps put forth the different interest rates and analyses the various SIPs available.
Monthly installments of SIPs can be as low as Rs.500. Since SIPs are a result of diversification of various funds, the risk involved is comparatively less. Also, SIPs involve the method of compounding, which ensures high returns if the duration of investment is long enough. SIP is a means to invest in mutual funds. However, there are more ways too.
Investing in the stock market
If you’re someone who finds the stock market interesting, a lot of material is available on the internet and now, even in mobile applications through which you can learn. Even if you hire a good broker, who charges a minimal commission, you’d be able to make some profitable investments. Especially, if you want to make a huge profit in a short period. All you need is a Demat or dematerialized account. Some sights offer to make it for free and hence, you must be vigilant.
The golden rule of the stock market is the higher the risk, the better the profits. It’s also very important to keep yourself updated with the latest news for a better understanding of the stock market. Apps like Moneycontrol also provide a platform for the virtual stock market for a realistic experience. So, you can practise there first.
But before that, you got to get yourself out of any debt or liability as it can affect your risk appetite and lead to greater bizarre. As Warren Buffet suggests, rush things if you are a know-nothing investor. Know the market and let the market know you too. Investing in the Stock Market is one of the most common yet arguable modes of investment. It is the most profitable source for an investor to pledge his money.
Buying a stock is basically a tiny part of a company. If the company makes sufficient profits, the investor is paid for is the share of investment. They are known as dividends. Your investment gradually turns profitable as the company grows over time. Meaning, as the company grows, your price per share also increases. Which later accounts for profitability when you sell your shares.
Tax saving SIP’s
Equity Linked Savings Scheme (ELSS) is a type of tax saver fund. It is more helpful for the people who belong to the high-income bracket. One doesn’t have to pay tax on the amount invested in this fund. For instance, if your income is 10, 00,000 p.a. and you have an SIP of this fund of Rs. 5,000 per month, then by the end of the year a total of Rs. 60, 000 would be the tax-free amount. This means that the investor would only be required to pay tax on Rs. 10, 00, 000- 60,000 = Rs. 9, 40, 000, thus saving tax. So, this is a method through which you can invest small amounts and save money, at the same time.
Use of payment apps like PayPal/Paytm
Mobile applications like Paytm and Paypal also offer the facility of a saving account deposit. This means that you can win cash backs and coupons which at the end of the, do add up to a lot and at the same time, have a savings account on a mobile application. So be it your groceries, clothes, makeup, accessories, etc. you can use these apps and get the best of the offers. Make a note of every time you save an amount or earn something on these apps and you’d realize how much of a difference it makes. In this wat, you can invest and make some money, at the same time.
Investments in ETF’s & Mutual Funds
Mutual Funds are yet another famous mode of investment. A mutual fund is basically an investment in a particular company or a bank. In this case, the investment banker hired by the company invests your sum of investment in various stock profiles and bonds. With Mutual Funds, you can buy a basket of stocks that are typically chosen by a financial expert of the company.
On the other hand, a mutual fund is a basket of investment funds that consists of a variety of securities like equities, bonds, debts, market securities, etc. These funds are managed by professionals who are also known as fund managers. Compared to the stock market, mutual funds are much easier to understand and invest in. According to ‘making Smalltalk’, as of 9th August 2019, there were 79 ETFs and about 2,500 mutual schemes are available in the Indian market.
ETF or the exchange-traded fund is made up of a collection of securities that usually track an underlying asset. However, these securities can be from various sectors. An ETF is similar to a mutual fund. But, ETFs are listed on exchanges and its shares are traded throughout the day, just like an ordinary stock.
ETFs are run by various fund companies and banks. And for investing in these funds, you’d require a Demat account. However, you can trade in mutual funds through brokerage firms, mutual fund companies, banks, and most importantly mobile apps. The initial amounts of both of these options are very less.
Investment bonds
Bonds usually come with lock-in periods so it is recommended to not invest your emergency budget in any lock-in investment modes. Purchasing a bond is essentially lending your money to a company or the government. These companies or the government then pay you interest over the loaned amount, precisely for the bond’s lock-in period. Bonds are ideally much much less risky than the stock market but their return on investment is quite lower than the stocks too.
When you purchase a bond, you are essentially loaning money to either a company or the government. The government or company selling you the bond will then pay you interest on the “loan” throughout the bond’s lifecycle. Bonds are typically considered ‘less risky’ than stocks, however, their potential for returns is much lower as well.
These days, even small investors can buy government bonds. In India, purchasing government bonds is easier than ever because it can be done by using a mobile app or a web-based app of NSE (National Stock Exchange). The NSE app for buying government bonds is “NSE goBID”.
You may be 20 or you maybe 40 but it is never too late or early to start investing. The right time to invest is now! Financial literacy is understanding the power of compounding, a month can often lead to a larger sum by the time you retire.
As thrilling as this may sounds, managing finances is equally difficult for a lot of us. Though managing finances is a highly subjective discussion, there are a few apps that can help you run your financial clock smoothly. Find out more about them here! All the best!
Originally published at https://www.fuzia.com.