Investment Basics – Mutual Funds, Equity, SIP and more – Axis Direct
Mar 13, 2018 | Source: http://anandvijayakumar.blogspot.in/
Basic Investment Rules
Every kid from the 80s and 90s that grew up watching Disney cartoons on TV (way before iPads and YouTube took over entertainment) would remember Scrooge McDuck - the rich duck who swam in a big vault full of gold coins and wished we had so much money. He was a penny pincher who hoarded money like there was never tomorrow. We on the other hand, spend there is no tomorrow and barely invest. Even if we do, most ignore the basics and go with hearsay
Starting late is better than not starting at all. The important thing is to start now and keep going...
Basic idea 1: Start small and do it regularly
When I started my career 14 years ago, I was sure than once I had 2-3 salary increments my cashflow situation would improve and a lot more money would be there to invest and spend. Sadly, more income doesn't really mean more money. As my income grew, so did my commitments and the income/expenditure race will be neck to neck forever. So, if we wait to have a big lump-sum of cash before we start investing, it would be a never ending story.
Don't worry about saving up a lot of cash to start investing. You can start small. Most banks in India allow you to start recurring deposits for as little as 100 rupees a month (some banks ask 500 but that’s not the point). Almost all mutual funds allow SIP Investments starting from 500 or 1000 rupees. Even DEMAT brokerage houses these days have started regular saving/investment options in blue-chip stocks in either the BSE or NSE by investing a small amount each month. There are plenty of options available in the market. Plus, the longer you stay invested, your money grows that much more. Heard of the term "Power of Compounding"?
Basic Idea 2: Start with what you know
Once you decide to invest, the biggest problem or fear people have is our individual knowledge in investments.
Yes, it is very true that you need a lot of technical know-how to actually buy/sell specific investments at the most opportune moment to make the most money. We are not talking about that. There is a plethora of information on the world wide web.
If you don't want to pick and choose individual investments, go for mutual funds. Choose a few good mutual funds where the fund manager performs the due diligence and invests in the best possible avenues. In parallel spend time understand financial statements, investment philosophies and rationale to keep yourself abreast of the developments in the world markets.
Lack of knowledge should never be a deterrent to stop you from investing. Even if you feel you lack the know-how to pick & choose a stock or mutual fund, go for a bank deposit either fixed or recurring. You get guaranteed returns (that may fail to stay at par with inflation) but still you are actually saving money rather than spending. That’s better isn't it?
Basic Idea 3: Balance your risks
Yes, investing may be risky, but then so is driving a car or crossing the road. We see news of accidents every day on our roads, but has that stopped us from driving or commuting to work? People don't mind riding a motorcycle without a helmet or a car without a seatbelt which could potentially endanger their lives however, when it comes to investments or losing money, the word RISK becomes a showstopper.
Without deviating too much from the topic at hand, what am trying to get to is the fact that, there is risk in everything. Risk of losing money in investments is very real but that shouldn't deter us from investing.
Basic Idea 4: Don’t follow the herd
Always do your due-diligence and homework before you commit to investing into any asset or product. Just because everyone is doing it doesn't mean it’s right. When it comes to our hard earned money, we are the only one that knows how hard it was to actually earn that money. So, if we are going to lose it, it should be out of our own volition rather than following someone else's idea because we were too lazy to think by ourselves.
Basic Idea 5: Don't be shy to seek help.
Remember, good financial advice is seldom FREE and free financial advice is seldom GOOD. If you want proper advice, sign up for a professional consultant who will suggest the best investment options for you, for a fee. If the consultant is getting a fee from an investment company instead of you the customer, his loyalties would lie with the company not you.