There are plenty of investment options available for first time investors but one needs to consider a lot of things before going in for one. Shalini Saksena speaks with experts to tell you how you can make the most of your investment plans
When it comes to investment options in India, most people go with the flow. And if they happen to be first-time investors, the best and easiest way is to ask their colleagues or seniors (if they work in MNCs). However, financial experts tell you that what works for one person doesn’t necessarily work for the other. Each person is different and his needs are also different. Therefore, going with the flow is definitely not a good idea. A fact that a working professional found out recently when she was advised to plan better for her future while she wanted to enjoy the money she was getting in hand.
Not knowing where to invest, she started investing a small amount in a fund in which a colleague had invested in. While the portfolio had worked for her colleague, for the 26-year-old it was an entirely different matter. She needed the money for a medical emergency. Unfortunately, her money was put in for a locked-in period (at that time she had not given a thought to this clause). So, what are some of the points that a person should keep in mind while investing for the first timeIJ
“A person needs to understand first what is the period he wants to invest and secondly what percentage of risk he wants to take. If you want to invest in long term invest 60 per cent of your portfolio is equity and mutual funds and 40 per cent with fixed deposits and debt funds. One can start with investment in mutual funds via SIP route or can do a fixed deposit with a bank for a risk free investments to start with,” Rishi Mehra co-founder of bimadeals.com, a Delhi-based company says.
What is important is the time period he explains. “Second, the flexibility that one requires for the liquidity of the investment — can you withdraw anytime without paying penalties. Another point to keep in mind is how does one want to invest — one time or in monthly saving mode,” Mehra tells you.
Agrees Anil Rego, CEO and founder of Right Horizons. “The first thing to keep in mind is the tenure of investment and the timeframe for the investment — short-term (less than a year) or long-term (more than a year). Equity-linked investment avenues don’t attract tax after one year. So a person who has higher risk capacity and the investment horizon is more than a year, can consider equity as one of the avenue. Second thing to consider is the risk-taking capacity. Check the risk capability, i.e. how much risk is you ready to bear in your portfolio. Design the investment options based on the risk appetite,” Rego says.
The other points to keep in mind are the kind of tax benefits an investment gives. Many investment options do provide dual advantage returns plus tax benefit. Investing for financial goals is another key point to take note of. Rego also tells you that it is important to invest across multiple asset class in order to reduce the risk associated with the portfolio and also to enhance the returns gained from the mix.
The fact that most people don’t do their homework and depend entirely either on the financial advisor or hearsay means that sometimes when the person actually needs the money, there is none. The truth is that there are many investment options in the country. One needs to just do some research before going for actual investment.
“With the growth of Indian capital market, multiple investment options are available based on different risk level. One will find investment options ranging from low to high risk level,” Rego explains.
Experts also tell you that there are some short-term options that you can invest in. “With an investment horizon of less than a year one can consider parking money in debt mutual funds, liquid funds, fixed deposits, debt monthly income plans. Since these are debt instruments they yield lower returns but the volatility is less as compared to investment in equity linked products which ensures capital safety up to certain limit,” Rego opines.
Then there is investment options outside of India. These are available at two levels: International mutual fund schemes which invest outside India and offshore investment avenues. There are some mutual fund schemes that are specifically designed to invest in foreign markets. Such schemes can be considered for investment as a part of the portfolio in order to diversify.
“The offshore investments are directly into companies based outside India. The investment is made in the foreign currency. An ideal example of such an investment is structured derivative products,” Rego concludes.