Step by step guide to start investments in India

Step by step guide to start investments in India

Last Updated on 1 year ago by Raj Kumar

Step by step guide to start investments in India in 2021

Investment is often a topic which is largely misunderstood in India. The moment you talk about investment, people assume its for short term gain, Stocks, real estate etc. In this article we will try and talk about what investment really is and how you can get started with investments.

What is investment?

So what is investment? – Investment is something where you are keeping aside a valuable thing(it can be time, money etc) with an intention of benefiting out of it in short-term, medium-term or long term.

People often relate investment only to money investment but in actual fact time investment is the best form of investment. When you invest your time effectively then you can get much more returns out of it than investing money!

Having said that investing money is an essential thing that everyone should understand clearly and should plan to get it right!

So are you ready for investments? let’s start with your assessment as below –

  1. Do you already have an emergency fund?
  2. Why do you want to invest?(Time or Money?)
  3. How much money are you planning to invest?
  4. How long is your holding period and how much risk can you take?
  5. How much time can you commit to your investment?
  6. Is there an investment that can help you fulfil your mission?
  7. Should you diversify your portfolio?

In this article we will focus on investing Money!

It’s really important to understand why you want to invest before you jump in and put your hard-earned money to work. Everyone wants to get rich quickly and why not they are perfectly fine to have that thought. But with this getting rich quickly mindest many people have lost money rather than making any!

On the other hand, there are many people who are too conservative and do not invest their money in the right instruments by which they end up getting returns which doesn’t even beat inflation.

In this step by step guide to start investments in India, we will see how you can plan your investment journey so that you don’t end up losing money and have a sound understanding of making your fundamentals strong to start your investment journey.

Step by step guide to start investments in India

Step by step guide to start investments in India

Step by step

Steps detailing what you need to do to start investing in India

20mins 20 minutes

Step 1: Do you already have an emergency fund?

Before you start investing your money, you have to first assess your current financial situation. Track and anticipate your expenses and save up for an emergency fund. Three to six months worth of your monthly expenses is recommended. Once you have an emergency fund, you become more confident in taking investment risks. 

Do not confuse between your investment and Emergency fund as they are meant for different purposes!

Step 2: Why do you want to invest?

why to invest

The main reason you want to invest is to make your money grow. Unfortunately, this reason is not enough. You should have more specific objectives. Are you saving up for retirement? Do you simply want extra income? or you just want to become rich quickly?

Let’s be honest – Everyone wants to be rich quickly and why not, we all want to be millionaires. but that thought of becoming rich quickly have made many people poor rather than rich!

Knowing how you are planning to use the profits from your investments helps in determining the best investment product for you.

For example, if you want to prepare for the education of your children, instead of investing in a risky stock you may want to have your investment secured in terms of PPF or debt mutual funds

If you’re simply preparing for a special occasion such as your wedding next year or a vacation out of the country , then it’s wiser to put your money in short-term, low-risk investments such as debt mutual funds.

If you have several objectives, list them down and assign their importance to you. 

Step 3: How much money are you planning to invest?

how much you want to invest

This is a difficult part; Everyone thinks they do not earn that much to invest. They postpone their investment plan because they think that they earn very little to start any investment.

Believe me, even if you earn 5 times that you are earning today- you will still feel that you earning less. So rather than postpone your investment plans, you should always look to take out a fixed portion of your earnings towards investments.

If you are a beginner to investment, start with a small amount and keep increasing that amount every month. After a year when you see your investments have grown, you will feel confident about putting aside a sizable part of your income towards investments.

Do not over-leverage yourself when it comes to investing i.e. do not invest in borrowed money!

Step 4: How long is your holding period and how much risk can you take?

how long is your holding period

Investments take time before they return income. Different assets increase and decrease in value at different rates. This is the reason you must understand that your investment choice plays a crucial part according to your needs.

You must not put all your eggs in one basket and stick to only one investment approach.

You should split your investment goals into multiple ways as below:-

1. Long term goals – Invest in instruments which will give you good returns in long term(keep in mind that these instruments may give you negative returns in short term) – Example investment into stocks.

2. Medium term goals – Invest in instruments which gives good returns in medium term with less risk.

3. short term goals – invest into instruments which gives you fixed returns.

consider reading – safe investments with high returns in India

Step 5: How much time can you commit to your investment?

how long you want to invest

This is a common misconception among beginners, they think that after investing their money, they could just sit back, relax, and wait for the money to grow. Investments, in general, do not immediately translate into passive income. Your active participation is required for it to become stable and profitable. 

Therefore, you should determine how much of your time you can devote to studying and monitoring your investments. Remember that businesses experience lean and peak seasons and the money market fluctuates if you are out of the loop when these things happen, chances are you won’t see your money back.

Keep this in mind when you finally choose your investment, especially in stocks!

Step 6: Is everything clear now why you’re investing?

investment understood

After fulfilling the requirements that were asked in the previous steps, it’s now time to develop your personal investing mission statement. Write it down and read it before you make investment decisions. This helps you focus on your objectives and avoid being sidetracked into less optimum investments.

Below are sample statements that could guide you: 

1. I have Rs 20,000 just sitting in my savings account which I want to invest for some extra income.
2. I’m planning to use this money next year to pay for my vacation trip abroad so I’m only willing to invest in short-term, low-risk investments.
3. I’m busy at work so I can commit only a few minutes a day to track my investments. 
4. I want to finally quit my job so I need an investment that will help me accomplish that.
5. I currently have Rs 50,000 which I’m willing to invest in long-term and medium-risk investments.
6. I’m hoping to leave the corporate world within two years, so I need my investment to give returns that can cover my expenses by that time.
7. I’m willing to commit at least two hours every day to study and monitor my investments. 

It’s best that you write a draft of your mission statement and revise it for the next few days as you reevaluate and rethink your objectives and investment criteria.

Consider reading – investing for beginners guide in India

Step 7: Is there an investment that can help you fulfill your mission?

investment choice

We now come to the most important part of your journey to investing. Finally choosing the right investment instrument for you. By now, you probably have some candidates in mind but to give you more options, here’s a list of investment option you can consider to start with Top 10 Best investment options in India in 2020

Some common questions from first time investors

How do I start investing with little money?

You can start investment with as little money as possible. There is nothing called as little money in Investment. A mere Rs 500 per month is a sufficient amount to get started with investments.

You can start saving these little money and over the time the little money will turn itself into a noticeable amount with the power of compounding. If you have less money then you can probably start doing small SIPs into equity mutual funds and hold onto your Investments for sometime to get good returns.

How much money should a beginner invest for the first time?

If you are a beginner then you should be careful as how much money you should put when you are investing for first time. You should only put that much money losing which will not effect your financial conditions.

We have seen many people get carried away when it comes to investing for first time and they invest huge sum of money with out even understanding the repercussion of losing the money.

You should take a wait and watch method. You should first understand whether the investment method is working for your or not. Be patient and understand the investment mechanism before you invest a sizeable amount of money.

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