Beginner’s Guide to Smart Investments

Mutual funds

Mutual funds are one of the best investment options for beginners as they provide the benefit of professional management. Here, expert fund managers invest in a variety of securities to build a portfolio that aligns with the mutual fund’s investment objective – wealth generation, capital preservation, etc.

All the essential investment decisions, from asset allocation to when to buy or sell, are taken care of by the fund manager. Hence, as a beginner who doesn’t know much about the stock market, you can still benefit from stock market investments by investing in an equity mutual fund.

Why you should opt for mutual funds:

• Systematic Investment Plans (SIPs): An SIP allows you to invest a fixed amount at regular intervals in a mutual fund scheme of your choice. SIPs make mutual funds accessible, as you can begin investing with as little as ₹500 per month.
• They allow for regular, disciplined investing and leverage the benefits of compounding and rupee-cost averaging, which helps smooth out market volatility over the long term. SIPs work best for long-term goals like buying a house or building a retirement corpus.
• Diversification: One of the features of mutual funds that make it a smart investment is the inherent diversification they provide. When you invest in a mutual fund, say an equity mutual fund, you are investing in a basket of stocks, not just one stock. This helps spread risk and optimises your returns. It also makes mutual funds ideal for investors who don’t have the expertise or the time to track individual stocks.
• Variety of Funds: Mutual fund schemes come in a wide variety – equity, debt, and hybrid. Under each category, there are several subcategories, which allow you to select a fund according to your financial goals, risk tolerance, and investment horizon. For instance, if you are risk-averse, you can opt for a long-term debt mutual fund that invests in government and corporate bonds.

Gold

Be it 1975, 2000, or 2025, gold remains one of the best investment options for beginners and experienced investors alike. It is a safe-haven investment as it tends to hold its value even during economic downturns and has historically beat inflation.

There are several convenient ways in which you can invest in gold today:

• Gold Mutual Funds: By investing in a gold mutual fund, you can invest in gold indirectly, without having to hold physical gold. It is a simple and hassle-free way of adding exposure to gold to your portfolio.
• Sovereign Gold Bonds (SGBs): These bonds are issued by the Reserve Bank of India (RBI) on behalf of the government and make for a safe way to invest in gold. SGBs come with a tenure of eight years and offer an annual interest of 2.5%. If held until maturity, the capital gains from SGBs are tax-free.
• Digital Gold: UPI platforms and digital wallets allow you to invest in gold in small amounts easily. You can redeem it later either for cash or physical gold.

Fixed Deposits

Fixed Deposits (FDs) are one of the most popular and trusted investment options for beginners. They offer guaranteed, fixed returns that are unaffected by market volatility, making them ideal for risk-averse investors.

You simply invest a sum of money for a fixed tenure with a bank or financial institution in return for interest. FDs are a good option for parking your emergency funds and for other short-term goals.

While the returns may not be as high as mutual funds, the safety and predictability they offer make FDs a smart, stable starting point for new investors.

Tax-Saving Instruments

There are a number of instruments that offer dual advantages of tax savings and capital appreciation or retirement savings.

• National Pension System (NPS): NPS is a government-backed retirement savings scheme that comes with tax benefits under Section 80C. It not only helps you reduce your taxable income but also builds a substantial retirement fund, as the lock-in period is until you turn 60.
• National Savings Certificate (NSC): This too is a government-backed savings scheme, offering Section 80C tax benefits. However, NSC only comes with a five-year lock-in period and offers a fixed interest rate that is compounded annually.
• Public Provident Fund (PPF): This instrument has an Exempt Exempt Exempt (EEE) status, which means the investment contributions, interest earned, and maturity proceeds are all exempt from tax. With a tenure of 15 years and tax-saving benefits, PPF is a smart investment choice.