Novice investors are generally young and in the initial years of their professional life. Hence, they will have a long-term investment horizon. Having age and time on your side, a novice investor should look to make the most of their investments. We have covered the following in this article:
1.Why Should You Start Investing Early?
Starting to invest at a young age will let you utilise the advantage of long-term investment horizon to the fullest. As you have age on your side, you can go with an aggressive approach in your investment strategies. Even if something goes wrong, you would still have enough time on your side to recover and make good profits thereafter. Hence, starting to invest early is key to making the most of the investment opportunities.
As you have a long-term investment horizon, you can unleash the power of compounding by investing in mutual funds. Furthermore, you don’t need to have market knowledge. Mutual funds are professionally managed by fund managers who have an excellent track record of managing investment portfolios. Since you are a young investor, you can invest in equity funds as these are known to offer excellent returns in the long run. Hybrid and debt funds are also a good option, but you would limit your returns by investing in these. If you are to save taxes, then you can invest in equity-linked savings scheme (ELSS). These funds are covered under Section 80C of the Income Tax Act, 1961, and allows you to save up to Rs 46,800 in taxes a year. ELSS mutual funds offer the dual benefit of tax deductions and wealth accumulation, which no other tax-saving investment does.
Investing in stock markets gives you a chance to earn the highest returns among all investment options. As you have age on your side, you can invest with a long-term investment horizon. This will tackle the market volatility and benefit you in the long run. However, to invest in stock markets, you need to have market knowledge. If not, then you should stay away from stock markets. Investing in stock markets with no market knowledge is as good as gambling. If you had invested Rs 55,000 in the shares of Eicher Motors (the manufacturer of Enfield bikes) in the year 2001 (Rs 17.50 per share), then your investment worth would now be Rs 4.75 crore! Such is the power of stock markets.
Bank deposits are for those that are not willing to take any risk. However, low-risk investments come with low returns. If you have a lump sum at your disposal, then you can go ahead and invest in fixed deposits. The interest rate on fixed deposits are pretty attractive and can accumulate a considerable sum if invested for a long-term. If you can invest a fixed sum on a regular basis, say monthly or quarterly, then you can invest in a recurring deposit. One thing to note here is that the returns offered by bank deposits are never a match to the potential returns offered by mutual funds and stock markets.
There are a handful of government schemes that you can invest in. The most popular government savings is the Public Provident Fund (PPF). it comes with a lock-in period of 15 years and offers returns in the range of 7-9% a year. Apart from that, you can invest in National Savings Certificate (NSC), Voluntary Provident Fund (VPF).
The key to getting rich is starting to invest at a young age. This will give you an opportunity to accumulate a considerable amount over a period of time, and you can fall back on this to accomplish various goals.