Creator: Anastasiia_New | Credit: Getty Images/iStockphoto
Here is a thing about finance, you can dislike it as subject, but you need to learn it as a life skill. The sheer power of compounding can be harnessed if you start investing in your 20's, preferably before 25. Now you may have lots of questions like Which asset class to choose? What method should you adopt? What should be the minimum amount to start?. I would try to make this article your go-to-guide for investing tips.
Recently a survey from Aditya Birla Sun Life Mutual Fund stated that over 40% of the people started their first SIP in 40s, 35% belonged to 30s and 24% belonged to 20s age band. These data shows that SIP as a way of investing indirectly in Share market is less popular among millennial's, which shouldn't be the case if we are to believe that SIP should only be created for long term (>5 years).
What are the asset classes available?
Equity, Debt, Bank deposits, Real estate, Gold are some asset classes available for individual investors. Among all these as a millennial you should be focusing on only two - Equity & Bank Deposits. I will be taking you through both today.
What should be the minimum amount that you should invest monthly?
It completely depends on your financial standpoint, but i would suggest start with at least INR 1,000 (I started with this), trust me however difficult it may seem sparing this much isn't that big of a deal. Albeit INR 500 is the minimum amount you need to invest in any SIP.
Should we go for SIP or Recurring deposit?
Assuming you are in the bracket of 20-25 yrs of age, then taking moderate and calculated risk shouldn't be a problem as you have plenty of time to recover the lost money. Whatever amount you decide to invest according to your calibre, at least 70% should be invested in equity either through SIP or directly if you know how to trade. 20% should be in RD with a time of frame of 6 months to 12 months, reinvest the money received after that time period in FD and once you collect a corpus of INR 50k or more invest it in mutual fund through one-time investment. 10% should be kept as emergency fund. This whole process may seem like a mammoth task to achieve but trust me the results are sweet.
How to start?
Now you have made your mind to follow the above process, but Which scheme to invest?, see i am not a registered financial adviser neither do i sell mutual fund. But with my experience of investing go for a established mutual fund house like SBI, HDFC or Aditya Birla because this will make sure you don't loose your money. Search google for top performing funds (look for data of pre-covid), look for alpha and beta of mutual funds (Explained by me in this article), expense ratio which is the lower the better.
While investing Keep in mind, your primary focus should be to collect corpus, invest more on equity, start following stock market. And remember the first line of this article.
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Disclaimer - Above information is to spread financial literacy. We are not SEBI registered financial advisor, kindly consult your financial advisor before taking any investment decision.