The Beginner's Guide on How to Invest?

“What you bought for 100 Rs. Five years back couldn’t be bought right now. What about the money you kept on bank for the same five years?”



    Basics of an investment

    Investments

    Investments are financial options where you can invest with a goal to gain profits.

    Savings

    Savings is the amount of money every earning individual has to save for future needs where 20% is the advisable amount.

    Returns

    Return on investment is the profit gained from the savings spent on the investments. Every profit is respective to the risk taken during the investment.

    Financial News

    Financial news is the one important source of knowledge which a person has to know before investing.

    Risk

    Risk is always associated with investments. The investor has to decide the level risk he wish to take with the money invested.

    Portfolio

    Portfolio is an easy understanding of the investment made on different instruments by the investor.

    How to invest (Step-by-step):-

    1. Learn about how to invest in this article.
    2. Decide the amount to invest.
    3. Choose the investment (Insurance, Mutual Fund, Real estate, Stock market, Commodities).
    4. Invest and regularly track performance.
    5. Reinvest to benefit from the compounding effect.
    6. Get a free consultation for CAFS.

    How to invest your hard-earned money is a common question every new investor ask. We have created a beginners guide that suits any new investor. We hope it stands for the great support in your investment journey. This guide is for beginners or students who have less or no idea about investing but wanted to take a step. So let us get into how to invest – A complete guide for beginners. 

     

    How much money to invest from salary?

    A vital feature of the financial markets is the investment demand. Without demand, there would be no price for the securities. In fact, it’s possible that a security’s price may not drop at all in a declining market. This isn’t always true though and when beginners wait too long to buy stocks, they can end up paying too much per share and losing money in the process, all because of supply and demand. 

    That being said, there are ways to identify when an investment goes up or down in value so that you get a better sense of whether or not investing is worth it. Because we live in a world where most people have to work for a living, not everybody has the time or energy to think about investing. Even though it might be daunting, it’s worth spending some time thinking about what your financial goals are before you sit down and start dipping into your retirement.  

    You can decide what proportion of your income is allocated to savings, which might range from 25% to 40%. If you’re self-employed, you might want to do things differently and allot more of your earnings towards investment—you’ll need that monthly income for groceries and utilities later on! Many people fall into the trap of investing too little money into their future wealth. 

     

    Where to invest money to get good returns in India?

    Many investors are having a hard time deciding where to invest. Don’t let that happen to you! This article provides information on some of the best places to invest, and how you can get started. With investment experts like CAFS in charge of your money, it’s a walk in the park! 

    Those wishing for safe returns like an index fund or large-cap funds should consider investing with CAFS. They provide advisory service for investments which means that people can learn from their mistakes and errors for free as well as grants them access to helpful resources such as online courses and videos. 

    In the current market, there are a lot of investment options. A new investor can consider the options concerning the nature of investments. Investments have factors like – Risk, Returns, Fees, lock-in period, safety. Any new investor has to go through this hard process of understanding the nature of different investments and choosing the suitable one. One of the mistakes that most beginners make is that they come up with one or two specific ideas and they put all their money into those ideas without even considering alternatives or diversifying their assets. 

    In a very large market, there are a lot of options available and for that matter, you have to have multiple portfolios or investment options. You should consider diversification. If you do not diversify your investment portfolio, it would be very hard for you to survive these tough times. 

     

    Best investment options in 2021:- 

    Investing is a tough, but necessary part of life. When it comes to investing, there’s no one-size-fits-all solution. What you need is a diverse portfolio with different types of investments: stocks, bonds, and even cash. 

    In 2021, some investment opportunities may not be as lucrative as they are now so we will take a look at the best investment options in 2021.

    Top 5 investment options in India :

    1. Life insurance: 2021 being the year of pandemic made families suffer from loss of life. Families who predicted such a situation investing in a life insurance policy had financial support. As such plans provide financial coverage at the event of death up to 1 crore. Learn more about Life Insurance.
    2. Health insurance: The pandemic pushed people to spend a lot on Healthcare. Where informed investors evaded the same with a health insurance policy. A health insurance policy lets you claim all your expenses made at the hospital. Learn more about Health Insurance.
    3. Stocks: As of now companies that stand out are Adani ports, Ujivan small finance bank, and REC. These companies have good growth prospects and strong business models so their stocks could keep going up more than 20% – 40%. 
    4. Real estate: In 2021, real estate will continue to be a safe investment choice. Since earnings from the rental business will continue to grow if you keep a diversified portfolio of property, it is forecasted that a real estate portfolio can keep growing 12% – 20% annually.
    5.  Gold: Gold never fails as an investment. In the 2017 bull market, gold was up by 25%. So, if you invest in gold now, you may gain around 10% – 20% profit every year. However, it’s better not to buy physical gold but opt for mutual funds or exchange-traded funds because they are easier and safer ways of investing in gold. 

     

    Best investment trends in 2021:-

    An investment becomes profitable If a wise decision is taken while investing. In the current world, we have a lot of options to invest in.  

    • Cryptocurrency – A digital currency that doesn’t require governments intervention. Bitcoin is one of the famous cryptocurrencies. Learn how to buy Cryptocurrency.
    • Share market or Stock market – An investment made on companies’ capital which is invested in business and profit is shared with you. Nifty 50 shares and IPO are a few of the trending investments. 
    • Mutual fund – A fund manager takes responsibility for your money and charges you a fee. Index funds, ELSS, Emergency funds, Equity funds, Sovereign gold bonds are few good options under Mutual funds. Learn more about Mutual fund.
    • Gold – Gold is one of the favourite investments of Indians. Even though its value depreciated once bought. The price of gold increases in the long term. Digital gold is a great option to invest in compared to physical gold. 
    • Other investments – Beginners also prefer Real estate, Fixed Deposits, Recurring deposits and savings accounts which has considerably fewer profits than the above investments. 

    With the above-gained knowledge about different investment options, lets also know-how and investment could provide financial stability with consistency. 

     

    Investment analysis techniques 

    For a beginner, it is always advised to understand the investment journey with a financial advisor like CAFS. But it’s the investor’s duty to check and validate every move of the investment. Let’s discuss a few important investments analysis. 

    1. Expense ratio: – Expense ratio is the cost spent by the fund manager to manage the money of the investor. Every investment advisory charges an expense ratio whether the investment makes a profit or not. In CAFS we won’t ask the investor to pay an expense ratio as we get paid from the AMCs. Provided we travel with our investors throughout their investment journey. This makes way for efficient decision making that leads to a profitable investment.
    2. Growth rate: – The rate at which the investment is making profits within the portfolio matters for the compounding effect. The market conditions play a major role in the growth rate of any investment decision. Our financial advisors from CAFS advise investors to never Redeem an investment during the inefficient market condition. Rather hold and same and exit with a profit when the market condition is normal.
    3. Understanding the nature of an investment: – Most investors make mistake while understanding an investment. Each investment differs in its nature. Choosing an investment with a different nature that doesn’t match the investment goals of the investors doesn’t end well. 

    Other advanced investment analyses require basic knowledge of investments. We will learn them once we start predicting the marker movement becoming knowledgeable investor. 

     

    How to measure investment performance? 

    Would you like to accurately measure how a fund you’ve invested is performing? There are plenty of websites that will provide this sort of information, but the most accessible method for an individual investor is to use CAFS Money. 

    How does this work? After entering your investment details into CAFS Money, it will show the past performance of the entered investment. So if you have invested Rs. 5,000 in a fund for 2 years with an average daily return over the last year of 10%. The website shows information in regards to the funds’ history, current performance and profit earned over time. 

    The current market has provided a lot of performance metrics Let’s discuss the top 5 Performance metrics below. 

    1. Price to earnings ratio – This ratio establishes the willingness of the investor to pay for the investment.
    2. Annualised return calculator – It is used to measure returns of investments on a given day.
    3. Return calculator – It is used to measure returns of investments over a period of time.
    4. Average daily return – This simply calculates the average daily returns over a period of time and also calculates its projected future value.
    5. Accumulated earnings calculator – The accumulated earnings are calculated based on past days results and it also determines whether your assets have accumulated enough income to meet your goals. 

     

    How to reinvest profits in the stock market?

    Investing your profits is a great way to build wealth. But what’s the best way to invest your money? Should you make another investment using the profits from your first investment, or should you put all of the money in one basket? 

    It’s a tough question.  One school of thought says that putting all of your eggs in one basket can be risky, and it might be better to spread out investments so if something happens with one, there’s less chance that everything will go wrong. The other theory is that reinvesting helps create a compound effect over time. 

    The returns from an Rs. 5000 investments for 1 month could be a small amount of Rs. 500. The same can be spent to buy anything for your personal use. But is saved for 8 months the total investment amount is Rs. 10,718. This is 114% within 8 months. 

    The returns from the investments can be diverted to a different potential investment. Or they can reinvest the same. In general, it is advised to the investors to take an informative decision before moving the investments from one place to another. 

    It’s advised by CAFS to spend the returns only if needed and not to disturb the compounding effect.  

     

    The Power of compounding in the stock market: – 

    The one thing that is constant in the world of investments is to invest in the most profitable investment. That means that you need to actively work for profitable investment by investing your own money or the money under your control. There are three things you can do on your part: 

    1. Control what you want to invest in 
    2. Select a company with potential that will have a successful outcome 
    3. Invest money with proper planning.  

    Investing without action is just saving, which decreases the value of your saved dollar when inflation rises. The best time and place for this is now because if you wait another year, it’s going to cost more for an item at some point down the line than it does today. The most profitable investment methods, the compounding effect that can bring you a lot more returns than if you invest in an ordinary deposit.

    The compounding effect makes your money work harder for you allowing it to grow at an exponential rate. That’s why it’s one of the greatest advantages of investing instead of saving. Compound interest is when you earn interest on interest, thus, increasing your amount over time.

    Compounding effect example:-

    If you had Rs. 1 lakh and earned 10% compounded interest, then after 5 years, you’d have Rs.  2 lakh. That means that in just 5 years your earnings increased by 200%. If you can find an investment that compounds over several years, you can have a substantial amount in the end. This is why compounding should be a priority when it comes to investing as it will help you to save more and increase your money faster. Compound saving is not just for the rich but also for the people who are starting. If you invest Rs. 100 weekly in your deposit, then after one year it will have saved Rs. 1,074.

    However, if you invest the same amount in a fund that compounds at 1% per week then in one year your investment would have increased to Rs. 1,320 and after 5 years to Rs. 2,569.