Warrant Buffet once said, “Someone is sitting in shade today because someone planted a tree a long time ago.” From an investment perspective, it means that long-term investments can bring rewards not just for you but also for your family. Often, beginners are unsure of how to start their investment journey because they are unfamiliar with the financial markets. They might not even know that you can start investing in mutual funds with as little as ₹100 per month. The funds are managed by experienced fund managers, which means you don’t need to be familiar with the markets or monitor your investments constantly.
Want to know more about how to get the best out of your investments? Here are 3 hacks to help beginners.
1. Plan & Invest Regularly
Did you believe you need money to make money? Not with Systematic Investment Plans (SIPs). All it requires is regularly investing over the long term. Long-term investments in mutual funds via the SIP route give good returns due to the power of compounding. Also, rupee cost averaging helps you make the most of your investments if you stay invested for the long term. Regular SIP investments also instil discipline and a good savings habit. So, start as early as you can and plan to increase your investment amount at regular intervals.
2. Step up Investments Each Year
To maximise your returns from mutual fund SIPs, increase your investment by a certain percentage each year. When you receive a hike in your salary, plan you budget so that you can also raise your investment. Quite obviously, the more money you invest, the more returns you get. This can also help you counter the impact of inflation on your returns. To enjoy all the SIP benefits, increase your investment at a higher percentage than the inflation rate. For instance, if the inflation rate is 7.5%, your step-up percentage should be at least 10%.
3. Never Keep All Your Eggs in One Basket
A mutual fund automatically diversifies your investment. This is because your funds are invested across multiple equities, debt instruments or a combination of the two. This way, you don’t need to worry about only investing in one instrument. When your portfolio is diversified, the underperformance of one asset is compensated for by the outperformance of other assets. This minimises the impact of market risk on your investments. With a Systematic Investment Plan, you don’t even need to worry about modifying your portfolio based on changes in market conditions. The fund manager takes care of this on your behalf.
Final Words
Beginners might get nervous while starting their journey of investment. Market risks can create certain doubts in your mind. The good news is that different funds have different risk-reward ratios. So, do your homework and choose the right investment instrument based on your risk appetite, financial goals and investment horizon.