New to investing? Here’s how you can formulate your strategy

New to investing? Here’s how you can formulate your strategy

Since the new Coronavirus outbreak, the Indian equity market (the S&P.BSE.Sensex) has been on a rollercoaster. It has been difficult to make decent returns. However, over the past few months investors have seen wealth erosion. Equity investing is proving to be a difficult experience for newbies. They may even say, “Cash is King!” However, equity investing is volatile. If you’re new to the game, these are some financial investment advice.

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  • You should have enough cash to cover your monthly expenses and for emergencies. You can keep 12-24 months of your regular monthly expenses, including EMIs, in a separate savings account or a Liquid Fund, Overnight Fund, or Liquid Fund.
  • Your asset allocation should be set correctly, i.e. How much money you place in equity, debt, or gold (similar to placing eggs into different baskets).
  • Consider your age, income, assets & liabilities, assets & liability, risk appetite, financial goals and time available to set the optimal asset allocation.
  • Be realistic about your return expectations and don’t let past returns get you down.
  • To reduce risk, diversify your investments within each asset type (equity/debt, and gold). Over-diversification is not a good idea. It doesn’t provide any additional benefits beyond a point and adds to the complexity of managing a large portfolio.
  • Be open to the possibility of finding investment opportunities that will suit your needs. Volatility is your friend, don’t get scared by it.
  • SIP to suitable mutual fund in order to plan for your long-term goals (more that 3 years away). Consider recurring deposits as well as short-term deposits for short-term goals that are less than three years away.
  • Keep investing to achieve your goals. Stopping in the middle will slow down the power of compounding, and inflation can end up eroding your hard-earned money’s purchasing power.
  • Review your investment portfolio if you have one. Experts are a good option. Don’t make investment decisions (buy/hold, sell) based on a whim or fad. This could cause more harm than good. Don’t base your investment decisions on what your neighbor, friend, or colleague thinks. What he/she does with their portfolio. Remember that investing is a personal endeavor. There is no “one-size-fits all” approach to investing.

Investing equity funds

You should consider investing in equity mutual funds if you’re young and earning well. Strategic structuring of the portfolio and selecting the right scheme are key. A mix of large-cap, small-cap, midcap, and large-cap equity funds should be included in your portfolio if you have a minimum five-year time horizon. There are also aggressive hybrid funds that you could consider.

You have two options regarding the method: you can do staggered lump-sum investments or systematic investment plans (SIPs). SIPs encourage regular and systematic investing. They are also easier on the wallet.

Equity investing is meant to be long-term. If you’re not able to build wealth in the short-term, or you see wealth erosion, don’t get discouraged. As long as you hold the most suitable equity-oriented mutual fund, you can still be successful. Your losses may be temporary. Give your investments enough time to grow.

Investing for fixed income

Debt funds may be a good option if you are cautious about taking risks or have short-term financial goals that you can achieve in a relatively short time (less than three years). You should prioritize the safety and security of your principal over any returns when you invest in debt mutual funds. These funds can invest in sovereign securities, which is a good option. You might also consider Liquid Funds, which invest in securities up to three months in duration, and Overnight Funds, which invest in papers with one-day maturities.

In 5 minutes, you can choose the best Liquid Funds. You should remember that debt funds are not risk-free and earn market-linked returns. It is important to exercise caution when approaching debt mutual funds.

A bank fixed-deposit will earn steady and secure returns. You can maximize your bank FD returns by choosing the right investment plan. This could be a monthly interest pay-out, quarterly interest pay out, or cumulative. Also, consider your liquidity requirements and financial goals. Axis Bank offers the best interest rates for bank FDs, both for long-term and short-term investments.

Investing In Gold

Buy and hold gold tactically, in addition to the above. Gold will continue to shine as long as there is global uncertainty. It can be used to diversify your portfolio, provide a safe haven, and a hedge against other asset classes that are not offering attractive returns. You should allocate about 10-15% of your total investment portfolio to gold, and keep it with a long-term investment plan. You can invest digitally in gold through Sovereign Gold Bonds and Gold ETFs. This is a convenient and easy way to diversify your portfolio, without worrying about fluctuating gold prices. Digital Gold and paper gold are easier to sell than gold.

Use tax-saving tools

You can also save money by reducing your tax burden. You can choose between the New and Old Tax Regimes depending on your salary segment. You can choose tax-saving tools such as Equity Liked Savings Schemes and Tax-saver Ban Fixed Deposits. These instruments can be included in both your fixed income and equity investment portfolios. To maximize the benefits, allocate funds at the start of each financial year. Also, consider the lock-in periods of these instruments when investing. ELSS funds, for example, have a three year lock-in, while Tax-saver FDs have a lock in period of five years. Public Provident Fund is also available, particularly if you’re just starting your career. It has a lock-in period that lasts 15 years. This is the only tax-saving tool that provides tax benefits at both the beginning of your investment and the maturity.

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