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9 Oct 2020

Top 5 Investment Options For First Time Investors In India

Nisha Ramesh

Successful investing starts with courage

– Anonymous

In today’s fast-paced world, relying on just a source of income and savings may not be wise, as you are exposed to greater financial risks such as inflation, job loss/stagnation, and financial emergencies. In the long term, it results in limited financial flexibility that affects your personal growth. 

Therefore, creating multiple income sources by investing in different asset classes helps ease such risks and makes you financially independent in the long run.

But, for a first-time investor, it is often tough to get started. With tons of investment options available in the market, risks associated with each investment, investment strategy dynamics, and many other factors often lead to serious confusion and analysis-paralysis. 

Top 5 Investment Options For Beginners In India

To simplify your investing journey and help you generate decent returns in the long term, the following are some of the popular investment options for beginners in India.

#1. Cryptocurrencies [NEW]

They are digital assets used as a medium of exchange which stores ownership records and transactional data on the blockchain. Cryptocurrencies have emerged as a promising asset class with some great returns potential over the long term.

In fact:

The first cryptocurrency, Bitcoin, was launched in January 2009. And in a decade of its existence, it has proven its efficiency as a medium of exchange and store of value asset. Started trading at $0.0001 in January 2009, the price of 1 BTC has grown by over a million per cent in 10 years and is currently trading at over $10,000. 

Compared to the traditional asset class, cryptocurrencies are fully decentralized. Meaning – it functions without a central authority, and no entity or individual can control or influence its price. 

There are over 7,200 cryptocurrencies traded in the market. And Ethereum, Ripple, Cardano, BNB coin, Litecoin, Bitcoin Cash are some of the popular cryptocurrencies.

Most currencies derive their value from demand and supply dynamics, making it more volatile than other asset classes. But though the asset class is only a decade old, it has surely rewarded the risk-taking pioneers.

Invest In Crypto With Just Rs.100

#2. Mutual Funds

For those who want to have a balanced exposure towards risks and enhance the return potential, mutual funds are the best option. Mutual funds are professionally managed funds that invest primarily in equity and debt securities. 

Mutual funds offer the ease of investing and much-required flexibility in the journey of wealth creation. There are funds available for every type of user that suits their risk profile and investment objective.

You can invest in mutual funds either through SIP or lumpsum investment. The SIP mode of investing allows you to invest a fixed small amount of money at regular intervals while benefiting from the rupee-cost averaging, which helps to bring down the investment cost.

The biggest advantage of investing in a mutual fund is getting access to a professionally managed diversified portfolio of equity and debt securities, even with a sum as low as Rs 500. 

#3. Equity

Equity stocks are considered to be a volatile investment option. Still, if you invest in a great business having strong fundamentals, the chance of earning higher returns over the long term is highest.  

For example:

The NIFTY 50, which comprises the top 50 blue-chip companies in India, has returned 93.90% in the last 10 years. However, investing in equity stocks requires you to know the market and understand the basics of stock price movements. 

#4. Bank Fixed Deposits

Bank fixed deposits are one of the safest and popular modes of investing in India. They are completely risk-free investments and come with attractive interest rates if invested for the long-term. 

The interest on deposits is compounded quarterly, which helps to get a higher yield on the deposit. One of the biggest benefits of a fixed deposit is that it is a highly liquid investment, meaning you instantly redeem your funds and take a loan against the deposit. 

Being a low-risk investment option, the returns are low compared to mutual funds, stocks, and cryptocurrencies. However, it is good to keep a certain percentage of your investments in fixed deposits to ensure liquidity. 

#5. Public Provident Fund (PPF)

The Public Provident Fund is a government-sponsored retirement saving scheme for individuals to invest a small amount of money at regular intervals. The interest payable on deposits is determined by the government and is subjected to quarterly updates. Compared to fixed deposits, the interest rate offered on PPF is a bit higher and offers a host of benefits to users. 

For instance:

The users can get a tax exemption under Section 80C of the Income Tax Act for the amount invested in the PPF account. The total interest accrued is also exempt from any tax calculation, making it a highly profitable and low-risk investment. 

Apart from tax benefits, the user can also avail loan against the investment amount and withdraw partially from the PPF account after completion of 5 years from the date of account activation. 

The PPF account has a mandatory lock-in period of 15 years. This can be extended in a block of 5 years any number of times up to the age of 60 years. 

Bottom Line

In the journey of successful investing, the right mix of fixed income securities and market-linked securities is essential. One that helps to reduce the impact of market volatility in your investment portfolio and another provides growth. 

Speaking about investing in cryptocurrency; it is historically volatile in nature. And is set on the path to find greater acceptance and acknowledgement shortly, which will help to drive its value.

However, as a thumb rule, never invest more than what you can afford to lose in any asset class. Because all investments are subject to some or other kind of risk, which, as an investor, is your duty to understand.

Happy investing !! 

[su_note] KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. [/su_note]

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

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Nisha Ramesh

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