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Our school-colleges educate us about the basic principles of maths and science, but no one tells us the basics of investment. This lack of financial literacy is probably the reason why only 5-6 per cent of Indians invest in equities, despite a culture of savings. Most people prefer to keep their money in savings accounts because of the safety. However, they do not realize that the returns from these accounts are less than the rate of inflation, so with the changing times, the value of their money keeps on decreasing.
Fintech companies are bringing change< /h3>
Today it can be said that technology is playing a big role in improving financial literacy. Fintech companies and financial institutions want to educate and empower people to make better and wiser investment decisions. They are taking steps in this direction by providing user-friendly interface, informative content and benefits of investment tools.
Nevertheless, it is natural for investors to get confused by the many options available to them. How to choose the right asset class to invest in? How do you know what’s right for you? I have found that the ‘investing truths’ Act as a handy guide for investors in their wealth creation journey. Here’s how you can build long-term wealth…
Invest even with small amounts
Start investing even with small amounts , but maintain that for a long period of time. Investing even with a small amount and maintaining it for the long term can actually be a powerful strategy for wealth creation. For example, if you invest Rs 5,000 every month through a SIP (Systematic Investment Plan). This scheme gave you an average annual return of 13% in 25 years, so in this way you can create a corpus of more than Rs 1 crore. This is nothing but the power of compounding.
Not investing at all is risky
Not investing money is wasting money. Inflation does not mean only increase in prices. It also means a fall in the value of money. If you don’t invest, then with today’s Rs 1 lakh, you will buy goods worth Rs 22,000 in 25 years (if the annual inflation rate remains 6 percent). To beat inflation, invest in assets that grow faster than the rate of inflation. For example, equities have risen an average of 13 percent annually, compared to a 6 percent rise in inflation.
Start tracking indices
Sensor to short-term market fluctuations No need to be impressed. Instead, focus on fundamentals for long term gains. Invest in Nifty50 which represents a portfolio of top 50 companies in India through Index Fund. Index funds are passive funds, which give returns similar to the market. Thus, they provide a low cost investment option with diversification across multiple companies and sectors. This allows investors the flexibility to benefit from overall market performance and minimizes the risk associated with individual stock selection.
Keep an eye on risk and return
Investors generally only While choosing funds based on their annualized returns, it is equally important to look at the risk. How does the fund manage the risks? Does it give you consistent returns every year or does it fluctuate? Ideally, you want to choose a fund that gives you high returns at low risk. At Upstox, we have done extensive research on this and have put together a list of top funds to make investing easy.
Invest in equities and save tax
ELSS or Equity Linked Savings Scheme is a category of Mutual Funds, which gives you the benefits of earning market linked returns and saving tax at the same time. Investors opting for the old tax regime can save up to Rs 46,800 in taxes under Section 80C through ELSS investments. The best thing – it has a lock-in period of only three years which is the lowest among tax-saving instruments.
Diversification of portfolio
An investment portfolio for risk management Diversification is important for Different asset classes perform differently under different circumstances. Therefore, it is always advisable not to concentrate investments in any one stock, trade or asset class. Invest a part of your money in debt assets such as fixed income funds and sovereign gold bonds issued by the government. This will keep your portfolio safe from market volatility.
Choose Direct Mutual Funds over Regular Plans
Why spend extra? Buying a direct mutual fund plan is like buying goods from a company. In this case you do not pay the agent and your expense ratio is low. Regular plans may have higher fees and commissions, resulting in lower net returns for investors. Hence, choosing a direct plan can result in lower costs and higher overall returns in the long run. It is important to carefully evaluate the expenses and fees for mutual fund investing, and direct plans can be a cost-effective option for higher net returns.
(Disclaimer: author upstalk Ltd. is the CEO & Co-Founder of S. The views published are his personal. ABP Live never advises to invest money anywhere. Do your own research or take the help of your financial advisor before investing anywhere.)
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