Important Tips to Invest Money Wisely

Whether you are a salaried person, a freelancer, or a business owner, you work hard to earn money with an aim to

• Sustain your present living standards and upgrade them
• Meet financial goals
• Financially secure your future
• Generate wealth for yourself and your family

You can't achieve most or many of these goals by just earning and saving money regardless of your income. Instead, you need to invest your money to make it work for you and help you meet your objectives.

People can often use the terms 'savings' and 'investments' interchangeably. However, they are different. Savings constitute the amount you are left with after taking care of all your necessary expenses from your salary. It is a good habit that helps create a personal fund for diverse use in the long run.Investing is the next step of savings. Once you have built some savings, you need to grow your wealth through investing. Investing can help you achieve all your long term financial goals, such as living a comfortable life, retiring early, or generating wealth.

While there can be different styles or philosophies of investing, some basic principles remain the same for all investment mindsets.

• Know Your Real Returns Inflation is the greatest eroder of wealth. It silently erodes the value of your return on investments while projecting a false impression of wealth accumulation. Therefore, you need to ensure that your return on investments beats inflation. You can do this by calculating the actual rate of return on your investments by the following formula.Real Rate of Return = Rate of Return- Rate of Inflation The following example can better demonstrate the concept: Ritika has invested Rs 100 on an investment instrument that gives a 4% annual rate of interest. Therefore, the value of her portfolio after a year will be Rs 104.However, the inflation rate during the same time was 6%. As per the formula, Real Rate of Return = 4 % - 6 % = -2% Hence, the real value of Ritika’s portfolio after a year is Rs 98, though she has Rs 104.
• Begin Early and Stay Invested Start investing as early as possible and stay invested for a long duration, preferably 20 to 30 years. Staying invested gives you the benefit of compounding that can help you multiply your wealth. Furthermore, you are more likely to be shielded from short term market volatilities by staying invested for the long term.
• Maintain Consistency Consistency helps you in developing a disciplined approach toward investing. It also helps you in better managing your finances. For instance, it would be easier to contribute a fixed amount every month toward your investment fund than contribute a large chunk a the end of the year.
• Diversify Your Investment Portfolio Imagine carrying a basket of eggs you just bought from the market and dropping it all on the way back home. All your eggs are broken. This is what they mean when they say- Don’t put all your eggs in one basket. Spread your risk by diversifying your portfolio. You can do this by evenly distributing your investment corpus across different types of investment vehicles and asset classes such as equity and debt.

Different types of investment opportunities are available for retail investors in India. You can choose any of these depending upon your investment mindset, risk appetite and financial objectives.

• Fixed income instruments like fixed deposits, insurance, government bonds, etc.
• Variable income instruments like mutual funds, equities, etc.
• Real estate
• Commodities like gold, silver, sugar, coal, etc
• Derivatives and currency trading

A beginner is at liberty to choose any of the investment types listed above. However, many of these investment types, such as derivatives, currency trading, commodities etc., require a certain level of knowledge and expertise and come with a considerable amount of risk.On the other hand, you cannot beat inflation by investing only in low-risk products, such as term deposits, etc. Therefore, the best option for beginners is to build a rainbow portfolio comprising of insurance, mutual funds, and other assets that can serve the purpose of both conserving and growing their wealth.

• ○ Equity Mutual Funds: Equity funds predominantly invest in equity and equity-related instruments. They usually come with high-return potential but also carry market risks, among others.
• ○ Debt Funds: These fundsinvest in fixed-income instruments like government bonds and securities where the returns are stable but lower than equity funds.
• ○ ELSS Funds: These are equity-oriented funds that give you tax deductions of up to Rs 1,50,000 in a year under section 80C. These are great for starters as they come with dual benefits of high return potential and tax benefits.

• Fixed Deposits Fixed deposits with a bank can generate higher interest for you compared to your savings account. However, while the returns are guaranteed and a good way to park your savings securely, these do not have inflation-beating return potential.
• Equity Trading You can invest in stocks listed on the stock exchange, such as BSE or NSE, by opening your Demat account . While this can seem like a lucrative way to generate wealth, active equity trading is not easy when you're a beginner. It comes with considerable risk, and not knowing when to pull out or invest can cause you more losses than gains.
• Mutual Funds Mutual funds pool money from many investors, and professional fund managers invest that amount into equity or debt instrument as per the objective of the fund. Thus, you don't have to worry about researching the market yourself. There are many types of mutual funds to choose from. You can take a pick depending upon your risk profile and investment objective. Some of the popular types of mutual funds for beginners are;
• Moreover, the SIP or Systematic Investment Plan in mutual funds can help beginners to get into the habit of investing in a mutual fund of their choice without burdening their savings. SIPs can be started as low as Rs 500 per month in a mutual fund of your choice.
• ULIPs ULIPs come with the dual benefit of providing you with life cover as well as generating returns for you. While a part of the money goes towards providing a life cover, the rest is invested into equity or debt based on the fund you select.

Investment need not have to be a complex exercise filled with financial jargon. Awareness, common sense and patience are often enough to successfully kickstart the investment journey that can help you meet your financial objectives.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.