Why It is really important for everyone to know the right ways of investing your money ?
Because we make mistakes while investing, and lose hard earned money.
Losses in Investment demotivates people. As a result, peoples end up spending money instead of investing again.
“Stopping to invest and spending money is not the solution” its problem for future.
In this article we will discuss the best way to invest money in India.
What is the best way to invest money?
For common people, Goal based investments is the key to success.
We must group different ways of investing money on basis of Goals.
Different goals demands different investment options for its compliance.
I believe, if common peoples, start goal based investing, half of finance problems in India will automatically get resolved.
#Goal 1 – Invest money for retirement
[Time Horizon – 20 Years, Wealth to be Accumulated – Rs 1.0 crore (say)]
With this example we are considering that one has 20 more years to retire. Twenty years is a good time to accumulate wealth.
While planning for retirement we must consider the negative effect of #inflation on our money.
Assuming that in next 20 years, the average inflation in India will be 5% pa.
What Rs 53,000 can purchase after 20 years, can be purchased by Rs 20,000 today.
Inflation decreases the purchasing power.
Rupees one crore when put in fixed deposit, it will generate returns @ 6.4% per annum (post tax). Interest on Rs 1.o crore @6.4% = Rs 53,000/month.
What does it mean? It means, if Raj have retire after 20 years, he must have Rs.1.0 crore as retirement savings.
But how Raj can accumulate Rs 1.0 crore in next 2o year? What is the best way to invest money for Raj?
When we are investing for retirement we would not like to take undue risks.
But as the investing horizon is 20 years, hence one can take a calculated risk of investing in equity. But I will recommend not to invest directly in equity.
One shall use the mutual fund (#MutualFundsSahiHai) route for investing in equity.
Use of a index fund will be the best way to invest money. For a duration of 20 years, an index fund can easily fetch 14% pa return.
Investing through SIP a sum of Rs 7,600 per month for next 20 years will generate Rs 1.0 crore.
After 20 years one can redeem this amount and put in fixed deposit.
This way one is ready to draw Rs 53,000 per month.
#Goal 2 – Invest Money for child’s Future
[Time horizon – 16 Years, Wealth to be Accumulated – Rs 20 lakhs (say)]
This is one of the best example of need or Goal based investing. Why I am considering it? Because we all feel responsible to meet this demand diligently.
Peoples don’t want to compromise with this under any circumstance. Generally, we take all the step to invest money for child’s future very proactively.
This is a typical need of an average household Indian family.
In our example, the target is to generate Rs 20 lakhs, in 16 years.
Though India is developing Nation, but majority still do not have enough money.
Proposing best way to invest money for an Indian family who does not have enough money is the greatest challenging.
When a family does not have leverage, it means they cannot afford to lose their money. It means they cannot be exposed to lot of risk.
In this situation earning above average return is tough.
For an Indian middle class family who wants to invest for their child’s future shall go for a balanced portfolio.
In a balanced investment portfolio, there is a clever mix of debts and equity linked instruments. Debt is less risky and equity carries high risk.
As common man’s investment know how can be limited, hence building a balanced portfolio by self can be challenging. But there is no need to worry. The solution is simple -“Cashiya- Personal Finance“.
“For this Goal, investing in a balanced mutual fund is the best way to invest money“
#Goals 3 – Invest money for wealth creation
(Investing time horizon – 30 Years, Wealth to be Accumulated – Rs 5.0 Crores)
Young professionals in India earn well these days. Hence it becomes even more important for them to know the best way to invest their savings.
If you are one of the above individuals and you are born in India etc then you can consider yourself as fortunate.
The growth of these countries will allow you to cash good long term returns.
I know these young professionals do not have time to devote to stock research before investing. But the advantage that they have is the long time horizon ahead of them.
They can use this extended time horizon to gain maximum benefits from investment.
They can invest fearlessly in equity linked mutual fund schemes.
I will suggest them to expose themselves to 100% equity, till they get married and start a family.
Sustained and consistent investment in equity linked mutual funds can easily give returns of 15% per annum.
First 8 years:
If we are investing Rs 10,000 per month, through SIP, in a diversified equity fund, then in 8 years the accumulated fund will be Rs 18.5 Lakh rupees.
Next 22 Years:
I am assuming that after the first 8 years of working life, the individual is go the family way. Hence this bifurcation of 30 years time horizon (8 years + 22 years).
In first 8 years, the person has done SIP of Rs.10,000/month. This way he/she built a corpus of Rs.18.5 lakhs.
After 8 years, the individual can let the corpus of Rs.18.5 lakhs in this diversified equity fund for next 22 years.
Under such a long time horizon, the person can safely expect returns of 16%+.
People who are young or new to investments should keep these in mind.
- Creating emergency savings funds is step one before one start investing.
- Make sure that you have medical insurance.
- Always keep your vehicle insured.
But above all, you must ensure that you are contributing in income tax saving schemes.
One cannot miss these steps and start investing money in stocks, mutual funds etc.
If you has not completed these steps already, it means you are not ready for investment.
In next article, we will discuss about Golden Rules of Financial Planning
Reference : getmoneyrich