Investing for the first time has its own charm and novelty about it. You are making a decision about your money with all the information that you have gathered till now. First time investors follow news on television and financial newspapers before making a decision about their money. Usually, it has been see that most of the first time investors take advice from their friends and relatives before investing for the first time. Sometimes these advices work but most of the times these advices turn out to be a fruit less activities. Keeping all these in mind, let us look at the different investment strategy available to first time investors in India –
- Start early – You should start investing in as early as you can. By staring early, you are giving yourself additional time for failure and success in investing journey. By starting early you are also giving yourself benefit of “power of compounding”. Power of compounding works as magic if you start early. For example if you invest Rs 1 lakh at the age of 25 then you will get close to 1 Crore Rs by the time you turn 50.
- Invest in SIPs – SIP stands for “Systematic investment Plan” and is one of the best options to invest in market. You can invest through SIP in mutual funds. Mutual funds are the best option for first time investors. These mutual funds are professionally managed by fund houses invest in large number of companies. Before investing in any mutual fund, you should look for past average performance of the fund house, total experience, sectors and companies managed etc. There are different types of funds available in market like large cap fund, mid cap fund, small cap fund, balanced fund, debt fund etc. Initially, investors should look to invest in balanced fund through SIP. By taking SIP route to invest in stock market you are reducing the burden from your side and also reducing the cost of funds over a longer period of time.
- Say “no” to day trading – Day trading is an investment strategy adopted by some investors to invest or exit daily from the market. You should avoid this strategy and remain invested for longer period of time.
- Dollar cost averaging – It is advisable for first time investors to not to invest their entire money at one lump sum payment in investment. For Ex – if they have 50 thousand to invest in stocks then they should break down this into 10 investments of 5000 each for 10 consecutive months. This will reduce their average cost of acquisition and even if market takes a down turn then their loss would be minimize due to “Dollar cost Averaging”.
- Tax saving funds – tax saving funds are also known as ELSS funds as their formal name. They are equity linked schemes but are eligible for tax exemption under section 80C of Income Tax act.
- Focus on fundamentals – For the first time investors, it is very important to invest in companies who have shown performance in past too, have high cash flows. History of strong earnings etc. First time investors should stay away from penny stocks of worthless companies. Usually, first time investors are lured by cheapness of these stocks. But, these companies are highly risky and investors should stay away from them.
- Traditional investment options – You should also invest in traditional investments like PPF, FD, EPF etc. You can voluntary contribute to your PF account by adding money from your side every month.
- Peer to peer lending – It is a new investment strategy available for a first time investor. You can invest your money by lending to a borrower through peer to peer lending platforms. You can generate returns of 18% to 25% from lending in these platforms.
As, we can see from above points, it is very important for first time investors to invest carefully and try to gain knowledge about it. One should come up with investment options having longer tenure in mind and avoid trap of extraordinary returns in short period of time.