The most common email that we get at Rupee Rani, is usually on the lines of, “Hi, I have Rs 5,000 to invest, where do I invest it?” Well, if only life were that easy! To start with, I am not a Certified Financial Planner, and only paid services can tell you exactly where to invest your money. The point of this column is to help you, the reader, arrive at your own decisions, and so, here’s a handy guide that you can refer to the next time you have some money to invest.
What can I invest in?
When it comes to investments, broadly, you can invest in the Stock Market, you can invest in Mutual Funds, you can invest in Government Bonds, you can invest through insurance, or you can put your money in traditional saving instruments like Bank Deposits or Fixed Deposits. And this isn’t even an exhaustive list!
What should I invest in?
Ah, a much trickier question! And the reason why I cannot give blanket investment advice is because investing depends on your own personal circumstances, like your age, your economic situation and your goals. Rs 5,000 that a housewife has saved is very different from the Rs 5,00- that has been saved by a bachelor from his first salary. So, you need to make the decision after taking into consideration your situation.
However, here’s what you need to know before you decide:
The Risk-O-Meter: Certain avenues of investing carry more risk than others. A fixed deposit, for example, is zero risk. Your money will be in the bank, safe, earning 5-7% interest per annum. It gets credited to your account the moment it matures, or continues to earn more interest. But bear in mind that it will never be more than 5-7%.
The Stock Market, on the other hand, is risky even if you know how it works. Prices of shares and stocks are affected every day by the economic and political forces of our country and the world.
So, if you were to create a risk pyramid, the Stock Market would be right at the top as the riskiest, followed by Mutual Funds (equity being riskier than debt), followed by Bonds, followed by Bank Deposits.
However, the greater the risk, the greater the reward. Your money can grow in ways that cannot be matched by Fixed Deposits when you invest in the Stock Market. The question is, can you stomach the risk?
100 less your age: One of the most common formulae given by financial experts when it comes to taking on risk is to reduce your age from 100 to arrive at the percentage of risky investments that you can take on. So, the younger you are, the more risk you can take on.
Once again, this is generic advice and cannot apply to everyone. If you are cautious about your money, you are more suited to safer investment avenues like Debt Mutual Funds and Government Bonds.
Building a portfolio: It’s also important to understand that investing doesn’t stop with putting in Rs 5,000 and forgetting about it. Success in investing is easier when you are consistent – so you can try making a habit of investing every month and you’ll be able to understand how this world works in no time. If Rs 5,000 is a big amount for you, try splitting it into 10 parts of Rs 500 to invest, so you can get the hang of it.
Read and monitor: Investing is a lot like gardening. You can’t just buy some plants and say, Ok, I am done. You will have to tend to it regularly. So, read as much as you can to gain knowledge and monitor your investments regularly. Your efforts, without a doubt, will bloom rewards.