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As I have talked about the baby steps one should take while, planning their finance in my previous blog, now this article will take you through the various investment options available for a beginner investor. Hold on your nerves, as you will make money for real. So, are you ready??? Moreover, I will share one interesting fact at the end of the article.
Happy reading 😊
I would like to start it with a quote from an eminent investor “The Warren Buffet”.
Investing Rules:
Rule 1. Never lose money.
Rule 2. Never forget rule no 1.
1. Index Fund:
These are the underdogs in the fund industry which are not able to make big headlines in the market. So, why am I suggesting you???
First, Let us understand what is an index fund. Index fund is a passive fund (i.e. not actively managed by a portfolio manager). It invests in the broader market by allocating in the indexes of the stock market (Nifty and Sensex)
Second, I see index fund as a good investment for a “No Nothing Investor” for the fact that it gives good return about 13-15% CAGR considering a time frame of 15-20 years and it is also able to beat many portfolio managers in the market. Moreover, the expense ratio is very less compared to active funds, hence it helps to save a lot of money for the investor.
SIP (Systematic Investment Plan) in Index fund is a great way to start your Investing journey.
Tax angle : Taxable @10% if long term capital gain is over ₹100000.
*Never consider index fund for a shorter time frame.
2. Mutual Funds:
I am very sure most of you have heard this rosy quote “Mutual Fund Sahi Hai”, and I agree to a certain point. I agree that mutual funds are great for investment but you need to select the right kind of mutual fund according to your need or else it might lead you to bigger troubles. It is great to start with a SIP (Systematic Investment Plan) where you need to invest in periodic intervals weekly, monthly and quarterly. The return from mutual funds is very subjective as it differs from scheme to scheme.
Tax angle : Taxable @10% if long term capital gain from equity oriented fund is over ₹100000.
# How to select the best mutual funds? Follow my next article.
3. Public Provident Fund:
It is a long term retirement planning option to those individuals who are not covered by the provident funds of their employers or may be self-employed. The account matures after the expiry of 15 years and it can be extended in blocks of 5 years . PPF can be closed permanently after the completion of 5 years only for medical purposes and higher education of children. PPF enjoys complete exemption status under the Income tax Act 1961. Investments in PPF is eligible under section 80C deduction upto ₹150000 p.a.
Tax angle : Roar with me. “ IT’S TAX FREE”
4. Bank Fixed Deposits:
This is the most common form of investment in India. Bank deposits tend to pay interest ranging from 6.25%-8.75% which is comparatively low and therefore it inherits inflationary risk but rules out market risk as it is not directly affected by market outcomes.
Tax Angle: Attracts a TDS @10% for interest above ₹40000 and ₹50000 in case of senior citizens.
PRO TIP: People in early stages of their career should get expose to equity as much as possible for the fact that, they have a longer horizon of investing period.
Interesting Fact: The Billionaire who never became a billionaire. Ronald Wayne, the little known third co-founder of Apple held 10% share worth $800 back in 1976, which would be worth more than $96 billion today, unfortunately he sold his shares back in the early days. Don’t be like Wayne.