Investing for Beginners guide in India 2023

Read investing for Beginners guide in India. Know about Investing for beginners with little money and the best place to invest your money.

This post was most recently updated on January 2nd, 2023

Have you always wondered what investment is? for beginners, it may sound like a fancy word for becoming rich! You may have heard some famous people getting super wealthy by investing in stocks or you might hear someone saying investing in real estate is the best thing to do! In this article let’s look at Investing for Beginners guide in India.

So what is investing? Some of the common questions that we see in most people’s minds are as below:

  • where do you start with investing?
  • what is required to start investing?
  • how do you get rich by investing?
  • is investing for me?
  • what should I learn to get started with investing?

First of all, we will clear all confusion about investing – Investing is not rocket science! Investing can be learned and done by everyone. You don’t need huge money yourself to get started with investing. You can start with as little as 100 rupees. With proper financial planning and having good knowledge of investments, you can create immense wealth for yourself over time.

What you should always remember is – why are you investing? and what you want to achieve with your investment. In this article, we will go through Investing for Beginners Guide in India which will touch on fundamental concepts of investing and what you should consider before you start investing!

Why Should you Invest?

The first thing you need to understand before you start investing is the money that you have today is not worth the same amount in a few years’ time. Reason? – Inflation!

Let us explain:-

Imagine you have 10000 rupees today and you have them in your closet. The 10000 rupees which you have with you today may buy you a few things as per the current rate. The value of the items you buy today appreciates over time because of inflation which is around 6% in India.

So the items you were buying today will be expensive by roughly 6% per year and will be 50% expensive in 5 years. But your money in your closet is still 10000 rupees in 5 years. So you can buy the same thing in 5 years with the same thing. So the value of your 10000 rupees has depreciated in 5 years by just keeping it in your closet!

If you would have invested this 10000 rupees in an instrument that would have given you a higher rate of return than the inflation value then you not could have bought the items at an expensive price but you could have bought more things along with it!

When you invest your money works for you without you having to do any effort. So money brings more money if you invest it properly.

With investment, over a period of time, your money starts to give compounding returns which helps you build a good corpus and passive income.

Compounding if the 8th wonder of the world!

– Albert Einstein

Over the long term, your investment will compound itself rather than decline in value and help you beat inflation so that you can live a tension-free life!

Investing is the process of putting money into financial assets with the goal of earning a return on your investment. There are many reasons why people choose to invest, including:

  1. To grow wealth: Investing can help you grow your wealth over the long term by providing the opportunity to earn a return on your investment. This can be particularly important for people who want to save for long-term financial goals, such as retirement, or for those who want to build up their financial security.
  2. To achieve financial independence: Investing can be a way to build up a financial cushion that can provide you with the freedom to pursue your goals and make choices about your work and lifestyle.
  3. To beat inflation: Inflation is the general increase in prices over time. Investing can help you keep up with inflation by providing the potential for your money to grow at a rate that is higher than the rate of inflation.
  4. To diversify your portfolio: Investing in a variety of different assets can help to diversify your portfolio and reduce risk. This can be particularly important in volatile market conditions.
  5. To benefit from compound interest: Compound interest is the interest that is earned on both the principal amount of an investment and the interest that has been earned on that investment over time. Investing can help you take advantage of compound interest, which can significantly increase your returns over the long term.

When should you start Investing?

You should start investing today. before you start investing you should make sure of below:

  • You don’t have high-interest debt like credit card debts which you need to pay: You should first repay your high-interest debt before you start investing
  • You have an emergency fund in place: It’s key that you understand and have an emergency fund before you think of investing.
  • understand your goals: Divide your investment goals into – short-term, medium-term, and long-term goals. This is very key as everyone wants to be wealthy overnight but in doing so they lose most of the invested money!
  • Have a clear understanding of different investment choices: You must understand, Investment is not like one size fits all. you should be careful in picking the investment instrument which works for you

Starting investing when you are young is best

The earlier you start investing the more money you will make for yourself. Compounding your investment takes time so if you have started investing your money at an early age then the chances are that you will make a lot of money for yourself!

If you start investing your money into stocks and if you start early then more often than not you will be creating a huge amount of wealth for yourself and also you will not affect that much when a stock market crash happens. History suggests that if you have started early investing in stock and stick to your investments then you will beat any investing instruments by a huge margin!

Let’s look at an example:
In the last 40 years, the Sensex has journeyed from 100 points to close at a level of 39,000 on 1 April 2019. There were periods of exceptionally fast growth and some periods of consolidation and slower rise. It took the Sensex 11 years to cross the 1,000 mark in 1990, but it crossed the next 3,000 points in less than a year. The below graph will show the growth of Sensex.

Sensex journey
Sensex journey

If you had invested ₹10,000 in a basket of stocks representing the Sensex and the same was rebalanced every time the Sensex underwent a change, then your corpus today would be over ₹45 lakhs. The same amount of money invested in gold over the same period would be worth ₹4 lakh today and in bank fixed deposit would have grown to a little over ₹2.5 lakhs, without factoring in the tax.

Every now and then there are stock market crashes like the 2008 stock market crash and the most recent one being March 2020 stock market crash If you are a long-term investor then these stock market crashes give you a great opportunity to invest and grow wealth!

If you a long-term investor then the recession is the best time to invest!

Pay Off High-Interest loans first

The biggest mistake people do is they start investing in instruments that yield fewer returns than the debt they have with them.

Let’s look at an example – If you have a credit card debt which normally costs you 36% p.a. in interest cost and if you have a bank deposit which gives you 6% p.a. interest then you shouldn’t be investing your money in a bank deposit or any other instrument for that matter.

If you get rid of your credit card loan then you are effectively earning yourself 36% interest which otherwise you would have paid to the banks!

Your primary goal should be to get rid of all interest loans first! Always remember – loans have a fixed interest rate which compounds over time and will drain your financial wealth!

Focus on getting out of debt as fast as you can, then dive into investing.

Consider reading –  How to get out of debt in 5 steps

Build an Emergency Fund

The concept of emergency fund is often misunderstood. people take their earnings for granted and assume that they will keep earning more and more as they are doing currently.

Well, life is not certain with that your job is also not certain. The chances of someone losing a job is as good as someone meeting with an accident. For accidents, you have life insurance to cover you. What do you have with you when losing your job?

Consider an Emergency fund as your insurance when you lose your job or face any personal difficulties in life. The purpose of an emergency fund is to help you in those difficult times and protect you from taking difficult decisions or getting into a debt trap!

An emergency fund is typically the amount that you would need to sustain for 6-12 months without any income with your expenses and liabilities.

Nothing is too small for investment

The common myth around people is they don’t have huge sums of money to start investing! well, you don’t need huge sums of money to start investing. even 100 rupees that you invest today will be at least 150 rupees in 5 years if you just do a bank fixed deposit(there are better investment options of course!).

What you have to remember is irrespective of how big or small your investment is, money compounds itself in the long run and money works for you if start investing early!

Let us tell you a story!

Two friends, Priya and Rahul start working at the age of 25. Priya starts investing ₹5000 immediately, while Rahul spends most of his money and starts investing only at the age of 30 as Rahul thinks ₹5000 is too little to invest at 25!

How much difference do you think this would make to their corpus when they’re 60? If we assume a uniform rate of return of 12% per year, at the age of 60, Priya would have accumulated ₹2.76 crores whereas Rahul would have ₹1.54 crores.

That’s right, just a small difference of 5 years allowed Priya to accumulate almost 1.8 times the corpus of Rahul. That’s the power of compounding. The money invested early on goes on to grow into a huge corpus due to the higher number of years of compounding.

Ignore the noise and bad advice

There will be a lot of instances where you will feel intimidated to invest in some junk stocks or instruments which promise to give you high returns in a short period of time.  Ignore that advice and focus on quality investments.

Please remember if anyone promises you a return of more than 12-15% then you should run away from the conversation. Many people get attracted by those types of commitments and then end up losing their entire money.

Be patient with your investments

Please remember your money will not grow overnight. You need to give time for your money to work for you.

Everyone wants to be rich like him but no one wants to give the time that he gave to become rich. Warren Buffet

If you have understood the above points then you can start looking at the investment options you have. Please study them carefully and check what is best for you.

Don’t know where to start with investments here is a guide for Top 10 investment options in India.

Are you aware of Top 5 Money management myths

Want some help in getting started with stock market investments? here is a guide – How to start investing in share market – 10 Point guide to help you make a start!

We hope the Investing for Beginners Guide in India gave you some insights on investing and how you can get started. The first step into investment is always tricky but the sooner they start thinking about the better it is. Good luck with your investing journey.

Books to read for beginners

Here are some book recommendations to get started with your investment journey.

Always remember, Like you can’t learn to swim without getting into the water, similarly you can’t learn about investment by just reading books. After you read the books try implementing the learnings to find out which one best suits you.

Investing for Beginners Guide in India – Closing thoughts

In today’s world, it’s quite important to understand why you should invest and more importantly where and how you should invest. There are many people who jump into stock markets to make quick money but end up losing a substantial amount of money for chasing short-term gains.

Being a beginner, you should never look for making quick money out of stock markets. More often than not you will most probably lose money rather than make any in search of short-term gains. But if you are patient and invest your money intelligently then most probably you will make a decent return.

We hope Investing for Beginners Guide in India gave you some insights on how to get started with your investing journey! if you like this article please spread the knowledge and encourage everyone to understand the true meaning of investment.

The Stock market really isn’t a gamble, as long as you pick good companies that you think will do well, and not just because of the stock price – Peter Lynch

FAQs on Investing for Beginners guide in India

  1. What is the best investment for a beginner?

    If you are a beginner in investments then it's often suggested to start investing in lower-risk instruments like mutual funds and blue chip stocks. Here are a few recommended investment options for beginners.

    1. Equity Mutual funds
    2. Debt mutual funds
    3. Index Mutual funds
    4. Provident fund
    5. NPS
    6. Fixed deposits
    7. Large-cap stocks

  2. How can I start investing in India?

    In order to start investing in stocks in India you will need to create a Demat account and trading account. After the account is created you can start investing in stocks.

    In order to start investing in Mutual funds, you can purchase mutual funds online via brokers or mutual fund platforms.

  3. Is it advisable to invest in stocks as a beginner?

    Investing in stocks can be quite risky. If you are a beginner then the recommendation will be not to directly invest in stocks unless you understand why are you buying the stock. You will be safe in investing in Index ETFs instead.

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