Top 10 Tips to Start Investing Your Money in India 2022

Indian youth are now more sincere about investing their money, according to a survey held by ETMoney in 2020.

70% of investors are below 35 in age whereas the female investor count has also increased from 9% in 2017 to 19% in 2020.

Indian investment report 2020 (1)

If you are also among those who have just started earning and want to start investing, then this article will give you 15 important tips to invest money in India. 

  • 5 tips to get the right investing mindset
  • 10 tips about best investment options in India

Without any further ado, let’s start.

5 Tips to Start Investing Your Money In India 2022

#1. Set Your Investment Goals

Setting up your investment goals is the first step to investing money. You must define your investment goals for investment, investment period, and the amount required. 

For example, your investment goal can be for the higher study of your 3-year old child. You would need say Rs 20 lakh after 15 years. 

You can divide your investment goals into the long term and short term.

#1. Long-term goals

Long-term goals are those that you require more than 5 to accomplish such as buying your house, child higher education, child’s marriage, or retirement savings.

For long-term goals, you can invest in stocks, or equity mutual funds that give higher returns over a long period as compared to other investment options. 

For example, 

If you have bought 10 MRF tyres shares in June 2000 at Rs. 1,500 per share (total investment Rs 15000). You would have Rs. 8,00,000 (at current share price in just 20 years. 

MRF Share price

Not every share performs like MRF tires, so you can expect an average return of around 13% to 18% over the long-term period. 

#2. Short-term goals

Goals that you want to achieve in the short period of 1 to 2 years like buying a car, or a foreign trip.  

You should invest in low-risk or safer investment instruments like fixed deposits, recurring deposits, or debt funds to avoid the market fluctuations at the time of money requirement. 

These investments are not linked with the stock market, so you don’t have the risk of money loss except debt funds where you think of little risk.

You can expect low returns around 5% to 7% as these investments are not linked with the stock market or other high-risk high-return investment instruments. 

#2. Know Your Risk Tolerance

You must know your risk appetite before starting investing in any option. Some investments like stocks or mutual funds may give higher returns but they are riskier than FD, PPF, RD. 

Risk appetite is your capacity to take risks for achieving your return objectives. 

Suppose an investment option has the potential to give a 22% return but has the chance of losing your investment capital by 40% as well. If you are ready to take the risk of 40% of capital value to earn a 22% return then your risk appetite is high.  

For example, suppose you invested Rs. 1 lakh in “Yes Bank” stocks in 2018 at Rs. 350 per share (total 286 shares) and yes bank stock price collapsed in 2019 and reached Rs. 35. 

That means your 1 lakh principal amount dropped to Rs. 10,000 only after 1 year. That’s how you can get an extreme loss if you invest without knowing the fundamentals of a stock.

Wrong time investment example, suppose you invested Rs. 52,000 in the HDFC capital builder mutual fund in Feb 2020 at Rs. 26 per unit.

And the stock market crashed in March 2020, and that wiped Rs. 20,000 from your invested principal amount and you are left with Rs. 32,000 in your mutual fund portfolio.

No doubt that it started recovering again within a few months. 

But if you couldn’t handle the stress of that loss, you would have redeemed your mutual fund units and bore Rs. 20,000 loss.

But if you could bear the loss, the mutual fund is currently around Rs. 30, giving you a profit of Rs. 8,000 on your investment.

So always invest keeping your risk tolerance level in mind.

#3. Diversify Your Portfolio

“Don’t put all your eggs in one basket” 

If you have started investing already, make sure that you diversify your portfolio. Diversifying means investing in balancing your investment money in risk-oriented assets and low-risk assets to reduce the impact of market volatility. 

High risk-oriented investments like equity mutual funds, direct stock investments will help you earn higher returns, whereas low-risk investments like debt funds, gold, or PPF will help you protect your investment from declining if the stock market turns negative.

diversify portfolio

You should also diversify your stock investment by investing in different sectors like Banking, FMCG, IT, Pharmaceutical because all sectors won’t fall together.

If IT stock prices are falling, your pharmaceutical stocks may rise and cover the loss. 

#4. Hire Financial Planner

“Risk comes from not knowing what you’re doing.”  – Warren Buffett

You can plan your investments yourself if you have knowledge and time. Otherwise, you can hire a certified financial planner (CFP) who will do the job.

We usually ignore the importance of hiring a professional for the sake of saving a few bucks but don’t realize the long-term loss that you have to bear because you may not save your money in the right asset, at the right time, and in the right proportion.

The CFP will understand your financial goals, your current income, liabilities, and the amount you can invest. Then he would suggest you invest how in a financial asset and why that would be beneficial for you.

Beware of self-proclaimed planners that offer you magic returns and overnight getting rich products or random advice from friends that could be loss-making. 

Rather go with SEBI registered financial planners for research-based advice.

#5. Invest in Yourself

“An investment in knowledge pays the best interest.” — Benjamin Franklin

Invest in yourself to learn more about personal finance. 

You can read personal finance books like The Intelligent Investor to make an understanding of different financial concepts like how to invest in the stock market or mutual funds, benefits of emergency funds, or how to pay off debt quickly.

You can also watch YouTube channels like ‘CA Rachna Ranade’ or personal finance blogs like ‘Investingexpert’ for further knowledge. 

#6. Systematic Investment Plan (SIP) Sahi Hai

A systematic Investment Plan enables you to build an investment habit if you are new to investing. 

You can invest a fixed amount in mutual funds through SIP on regular intervals like monthly, weekly, or quarterly. You can start as low as Rs. 500.

SIP helps you grow money over longer timeframes and also reduces the risk of market fluctuations. 

For example, if you are investing Rs. 1000 per month in SIP, at Rs. 100 per unit and you buy 10 units in the first month.

Next month, if the market crashes and the fund price falls to Rs. 50, your investment amount would reduce to Rs. 500 only. But if you have invested a lump sum of Rs. 10,000, your investment amount would have declined to Rs. 5,000.

Secondly, now you would buy 20 units (2x units) through the next SIP that would gain you more profits when the market rises.

SIP investment provides you a triple benefit of forming an investment habit, protects against market volatility, and increases your buying capacity during market dips.

10 Investment Options to Invest Money in India 2022

#1. Index Funds

If you are a beginner investor, who wants to invest in stocks but is not interested in knowing the complexity of stock selection, can opt for Index Funds. 

Index funds are a type of mutual fund that tracks the market index. In India, we have two Market Indices – Sensex for BSE (Bombay stock exchange) and Nifty for NSE (National stock exchange).

An index fund invests in all the stocks that an index contains. For example, if you invest in a Nifty-based index fund, it will invest in all the 50 stocks that comprise the Nifty.

The major benefit of the Index fund is that since the market index grows in the long run,  the funds that follow the market index, also grow similarly. 

Secondly, index funds don’t require active management from fund managers because they just imitate the index, so need not pay a high cost to a fund house for funds management.

An index fund doesn’t beat the market like equity funds because of no active fund management. However, it gives you a steady return in a long time frame provided there’s no market crash.

For example, check out the Franklin Index Fund performance in the snapshot below –

Index fund example

The fund tracks Sensex and has given almost 18% return in the last 5 years, but couldn’t beat the market index, as Sensex has grown at 18.69% in the same period.

Expected return – 12% to 18% annually (depending on the market index performance)

#2. Stock Investment

Stock investment is very lucrative because of its high return potential. But remember, stocks contain high risks.

You can invest in stocks if you have an understanding of company fundamentals, financial ratios, cash flow, and management.

You can start investing small amounts and keep on learning about stock analysis and increase the investment as you get a better understanding.

You can invest exponential gains if you invest in the right stock at the right time. For example, if you have invested Rs. 1,00,000 in Avanti Feeds in 2010 when the stock price was Rs. 2 per share. 

Now you would be having a net worth of Rs. 5.45 crores.

Avanti feeds share history

On the other hand, if you have invested in the wrong share or at the wrong time, you may lose all the invested amount.

As I have already given the example of Yes bank share price fall. If you invested Rs. 1 lakh in “Yes Bank” stocks in 2018 at a price of Rs. 350 per share, your 1 lakh principal amount dropped to Rs. 10,000 only after 1 year eroding 90% of the invested amount.

The best way to invest in stocks is to start with small amounts and learn about stock investment fundamentals.

Expected returns – Around 14% to 18% annually.

#3. Voluntary Provident Fund (VPF) 

The current interest rate of VPF for the year 2021-22 is 8.5%, which is the highest interest rate as compared to any other government investment schemes like PPF, or Sukanya Samriddhi Yojana.

Voluntary Provident Fund is an extension of EPF (Employees Provident Fund) for employees who participate in EPF but want to contribute a bigger amount.

You can contribute only up to 12% in EPF but the VPF option allows you to contribute up to 100% with the same benefit of EPF. 

Suppose you are single with a monthly salary of Rs. 30,000 and you can contribute in EPF up to Rs. 3,600. But if you want to invest more, say 50% of your salary, you can opt for VPF and earn the same interest in Rs. 15,000 per month contribution. 

Since your EPF and VPF accounts are attached to your Aadhaar card, it doesn’t get affected when you switch jobs.

Note – VPF has a lock-in period of 5 years. You can withdraw VPF or change the contribution amount on completion of 5 years only.

Return – 8.5% per annum.

#4. ELSS Tax Saver Funds

ELSS or Equity-linked saving scheme funds are a type of mutual funds that allow you to get a tax rebate. ELSS funds are eligible for tax deductions of up to Rs. 1.50 lakh under section 80(C).

You can save up to Rs. 46,800 by investing in ELSS Funds.

Tax saving formula as below –

  • Tax savings = Tax rate depending on slab * Maximum deduction amount
  • Final tax savings including 4% cess = (Tax savings * 4% ) + Tax savings
Tax slabTax RateRebate under Section 80CTax Savings CessFinal Tax savings (including Cess)
5,00,000 – 10,00,00020%1,50,00030,0004%31,200
10,00,000 and above30%1,50,00045,0004%46,800

ELSS funds come with a lock-in period of 3 years which is the shortest among other tax-saving investments like PPF has 15 years lock-in period.

ELSS funds not only save taxes but offer decent returns as around 65% of funds are allocated in equity. That makes them a risk-oriented investment as well.

Expected return – 12% to 16% per year.

#5. Public Provident Fund (PPF)

If you are not an employee but still want to invest in the provident fund, then PPF is the ideal option for you. 

You can earn 7.1% annual interest on your invested amount as per the latest government guidelines.

PPF has a lock-in period of 15 years. You can only withdraw prematurely only after the completion of the 5th year from inception.

Premature withdrawal is approved only under special conditions like treatment of life-threatening disease, or higher education.

Another benefit of PPF is you get a tax rebate on your contribution up to Rs. 1.50 lakh u/s 80C of IT Act India. The interest earned on PPF is also tax-free and gives you dual tax benefits.

Return – 7.1% annually

#6. Money Market Funds (Short Term)

Money market funds are short-term debt funds that invest in secure investment instruments that give you fixed returns with lesser risk tolerance.

Secure investment assets could be government securities like Treasury bills. Money market funds give you an annual return between 6% to 7% depending on the investment period. 

Money market funds are an ideal short-term investment for a period of 2 to 3 years.

HDFC money market fund

In the above example, the HDFC money market fund gives an annual return of 7.08% for a 3 years time period which is better than a fixed deposit as FD interest rates are quite low now around 5% to 6% per annum.

Expected return – 7% to 9% per annum.

#7. Cryptocurrencies

You can invest in bitcoins or cryptocurrencies if you have any knowledge about cryptocurrency or you are willing to learn about the market. 

As the crypto market is highly volatile, I would suggest you to invest only if you have the understanding. Otherwise, there is a possibility that you would end up losing your money. 

You can invest in bitcoins or other profitable cryptocurrencies like Ethereum, UniSwap, or Litecoin. 

Bitcoin has given an average of 408% return in the last 4 years. 

bitcoin 4 year return

But remember it also gave -72.6% returns in 2018 which means if you have invested 10,000 in 2018, then you would have left with Rs. 2,740 only.

Go for cryptocurrencies if you want to keep invested for the long term of 5 to 7 years with an understanding of risk factors. 

Expected return – Above 30% per year if well-diversified to reduce the risk

#8. Sukanya Samriddhi Yojana

You can invest in Sukanya Samriddhi Yojana for your girl child’s higher education and marriage. 

SSY is a government scheme that gives you a 7.6% interest rate which is the second highest among all the government schemes after VPF. 

Your investment maturity term is 21 years. You can withdraw money either on maturity or 50% amount when you girl completes 18 years for her higher education.

The conditions to comply for Sukanya Samriddhi Yojana are as below –

  • The girl child must be an Indian resident
  • The maximum age to apply is 10 years
  • Apply for up to 2 girl children in a family
  • Birth certificate of the girl child

You can open an account with a minimum amount of Rs. 250. You have to invest for the first 14 years after that you have the option to stop investing but the interest will be accumulated on the previously invested amount.

Another benefit of SSY is you get tax exemption up to Rs. 1.50 lakh u/s 80(C).

Return – 7.6% per year (second highest after VPF among government schemes)

#9. National Pension System (NPS)

NPS is a retirement plan that allows you to invest in the long term. The lock-in period of NPS is retirement or when you reach 60 years of age.

Annual returns on NPS are around 8% to 10%. You get better returns than other government schemes in NPS because your 50% money is invested in equities that make it a little riskier investment as compared to government schemes.

You get a 60% lump sum amount on maturity and the rest of the 40% amount serves you as a monthly pension for the lifetime. 

You can also contribute 50,000 extra despite your current investment status that helps you save taxes up to Rs. 2 lakh (1.50 lakh + 50K) in NPS.

Partial withdrawal up to 25% is allowed only after 3 years of account opening. But only under specific circumstances like a kid’s education, serious illness, or buying a home.

Expected return – 8% to 10% annually.

#10. Sweep in Account

A Sweep-in account allows you to cultivate the benefits of a savings account with earnings of the fixed deposit. 

In a sweep-in`account, when your savings account balance exceeds a particular limit, the excess amount converts into the fixed deposit automatically & you start earning fixed deposit interest rates. 

Whenever your savings account balance falls short to complete any transaction, your fixed deposit breaks down automatically and money gets transferred to the savings account.

For example, in SBI after approval of a Sweep-in account, when your savings amount increases above Rs. 25,000, your savings account is converted into FD. 

And whenever you withdraw your money and amount comes below Rs.  25,000, the account automatically converts into a savings account.

Most people like to keep money in savings accounts to meet the uncertainty. The sweep account provides you the liquidity of the savings account and return of the fixed deposit.

Return – 4% to 6% per year.

Final Thoughts

The main aspect of an investment is choosing the right instrument that aligns with your investment goals. 

The main mantra of investment is – “Save first, then spend.”

Some people keep on researching but don’t take any action or they keep waiting for the right time to invest. 

The simple way to invest your money is to take it one step at a time, learn from mistakes and never look back.

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