Investing as a newbie

After one lands in a job, the first thing that most parents will tell is to save money.  Saving money, especially for someone who is in their first job and living alone in a big city, may not be easy. But it is also not difficult. Saving is necessary as it will help you to tide over emergencies and fulfil your financial goals. Here are a few essential steps that you can take as a beginner.

Your salary is less than what you get

We always think that we will start investing once we have enough money. But it is never going to work out this way. One way to change this habit is to imagine that you get less than your take-home salary. For, e.g., You can imagine that your salary is Rs.30,000 if your actual salary is Rs.35,000. Thinking in this manner will help you to save a little amount of money every month.

How much should I save/invest?

Knowing how much to save is on everyone’s mind, but there is no easy answer to this question. It is because the lifestyle and needs of different individuals varies. While it may be easy for someone who stays with their parents to save 95% of their income, it may not be the same for someone living alone in a city.  As a rule of thumb, it is advised to save at least 20% of your income for your future goals. If you can’t start at 20%, start at 10% and gradually increase your allocation. The main point is to start somewhere.

What to do with the savings?

The next question that must have automatically come to your mind would be what to do with the savings. It is better to invest in your financial goals. However, it is most likely that you still haven’t figured out a financial goal. If you don’t have a financial goal in sight, the easiest way to save money would be to set up a one-year recurring deposit. Investing in an RD is extremely safe and very easy to open. Nowadays you don’t have to fill documents or visit the bank branch. You can create an RD in just two minutes through your bank app. All you have to do is add the tenure, the date on which money will be debited from your savings account, and the sum of money that you want to save every month. Remember to set the date within the first week of the month. 

Instead of RD you may also look at Liquid Mutual funds where you get the convenience of withdrawing at anytime just like you saving bank account and also get a chance to earn better return than savings account.

Once your financial goals are decided you can channelize your RD money or Liquid fund money into Mutual funds.

How to invest in mutual funds?

Mutual funds are an effortless and popular way of investing. Mutual funds invest in a pool of stocks and securities, and a dedicated fund manager manages it. It is especially useful for individuals who do not have the time and expertise to select stocks. To invest in mutual funds, every investor needs to complete the KYC process. The KYC is a one-time procedure. Your financial advisor will be able to help with the process. After the required processes are in place, it is time to select mutual funds. There are many categories of mutual funds for different goals and different types of investors. You should discuss your financial goas and requirements in detail with your financial advisor so that he/she can help you to choose the right product for you.

For e.g., if you want to save money for a vacation that is six months away, taking high risk and investing in equities won’t be the right way to go forward. A liquid fund can help you to save for your vacation. Similarly, for your financial goals that are 15 years away, a small-cap fund may be a good investment option. Ultimately, you financial advisor analyses your requirement, your risk appetite and your financial goals to ensure that you get right schemes in your portfolio suitable to your profile.

There are two ways to invest in mutual funds: lumpsum and through Systematic Investment Plan(SIP). SIP is one of the easiest and convenient to start investing in mutual funds, especially for salaried individuals. In a SIP, a fixed sum of money is deducted every month automatically from your savings account. SIP helps form financial discipline, which allows you to achieve your financial goals. If you have lumpsum amount at hand, you can invest lumpsum in the mutual fund of your choice. You can also invest lumpsum in the fund where you have set up a SIP. This will help you to reach your financial goals faster.

While it is reasonable to have the temptation to spend, it is crucial to save and invest money for the future as well. Investing should be appropriately planned, and mutual funds are one of the best ways to invest your hard-earned money and achieve your financial goals. If you are confused about which mutual funds to invest or how to go about it, a financial advisor can help you in your journey.