When you are in your first job, you could be barely 23, 24, or 25- young, enthusiastic, with the whole world at your feet. While time is on your side, you might not have many responsibilities or an immediate need for money. Hence, you could easily invest and start building your resources until you decide to get married, buy your first house, or your first car, or go for a fancy holiday. In such circumstances, you could very well choose to invest in mutual funds, equities, or fixed deposits (FDs). If you consult a conservative financial planner or an elderly member of your family, he will always suggest you go for the good old FDs. But the flipside always remains, with FDs giving merely four to five per cent return per annum. Along with that, there are taxes. On the other hand, stocks are always a risky bet.
To understand, how to start investing, you need to first ask yourself, why do you need to invest?
You should not randomly start putting money in different baskets, as everyone else is doing it. To get further clarity on your investment reasons, you need to understand the reasons why you should invest- what are your money goals? What is your broader life purpose that needs to align with your financial goals? While, your friend might be saving up a particular amount of corpus for a certain tenure to buy just a car, as the rest of the things are taken care of by his parents, it might not be the same for you. You might have a younger sister, who needs to be married in the next five years, and for which you would have to contribute substantially. In such a case, you need to plan accordingly, and choose your job and savings accordingly, to meet this financial goal within a definite period. Likewise, you might want to study overseas after 10 years, you need to then invest accordingly so that you get back the money when needed.
In case you are planning for an overseas backpacking trip with your friend, every two years, you need to create a travel fund with systematic investment plans (SIPs), or others.
Further, it’s important to break down your goals into short-term and long-term goals. If you want very high returns within a short period, you need to invest accordingly, but that is risky. Ultimately, when you have just started to invest, it’s also about creating wealth and getting into the habit of saving, which requires discipline.
Suresh Sadagopan, founder and principal of Ladder7 Financial Advisories, a financial planning firm said, “The first thing to do is to build a liquidity margin of at least three months of expenses. Also, there may be many indulgences and things on which one may want to spend like a mobile/ bike/ laptop/ vacation etc. It would be a good idea to save up for all these too instead of buying these on loans. The best way to put aside money is through debt funds and arbitrage funds.”
Beyond that, one needs to make investments. “A young person can look at equity investments with a long-term view, in a monthly mode. Beyond that one may still want to invest in appropriate debt options etc. as per the dictates of that particular individual,” Sadagopan added. For instance, we need to consider personal situations, what the goals are and when they are coming up, tenure and liquidity requirements, risk-reward sought, taxation, etc.
Ideally, when you are in your first job, according to experts, you must earmark 33 per cent to 40 per cent towards savings. “The easiest to start to ensure a balanced asset allocation are public provident fund (PPF), equity-linked saving scheme (ELSS). Both give tax benefits and both form part of different asset classes,” Dilshad Billimoria, a Securities and Exchange Board of India-registered investment advisor (Sebi RIA) and managing director and principal officer, Dilzer Consultants, a financial planning firm said.
To sum it up, ideally, one must start small, and start with what you can spare easily so this doesn't pinch you. “Keep in mind to increase it every year so that whilst you're enjoying the newly earned freedom but also keep focus on growing for the long run. Start with mutual funds as they're easy products to start with and give you diversification. If you can, set some goals, might be as small as a phone/ laptop or as big as a house/ car and just start towards those,” Shwetha Jain, financial planner, CEO, and founder of Investography, a financial planning firm said.
