Investment for Beginners

Investment, like exercise, is something, which should be started early so that an individual is better prepared and equipped to face the challenges of life, that do comes later. We will be suggesting various options that can be taken by individuals who are starting their investment journey and best options for investment for beginners.

We can start at any time to train and exercise on the basis of our objective, which can be:

• Immediate – An individual has to visit a shrine in a week where in he has to walk and trek a lot. Hence, wants to prepare for it.
• Short term – Someone has signed up for a half marathon in a couple of month’s time and wants to prepare for it.
• Long term – An individual wants to be healthy for life to live it with happiness.

However , if we start it early in life, the training regimen can always be altered to suit and meet any of the above three stated goals.

Similarly, if a person has a financial need to meet a :

• Immediate requirement – Like a medical emergency which comes up suddenly.
• Short term requirement – For a vacation, buying a car, etc.
• Long term requirement – Retirement, Kids education, Wedding, etc.

He/She should be in a habit of investment and start early. Only then, the above stated goals and requirements can be met.

Here, we will be discussing the options for investors who will be starting their investment journey and has not been through the roller coaster of financial investment.

Thus, let’s keep it simple for the first couple of years.

Let’s assume that there is INR 100 to invest, then looking at the current macro prospects, it can be distributed as:

• 30% in Ultra Short term debt Funds –  These are very liquid funds and are the best option to garner and get an annual 5.5-7% compounded return. These can be treated equivalent to cash and also offers a very high margin of safety to the invested capital. Few of the Ultra short term funds in India which can be considered are:
  • Kotak Savings Fund.
  • SBI Magnum ultra-short duration fund.
  • ICICI Prudential ultra-short duration fund.

• 20% in Gold – Gold as an asset class is a holy grail for any portfolio and has to be there. It will help an investor to beat inflation and is a wonderful escape from negative real yields which the world is seeing right now and are here to stay for the next few years too. Exposure can be taken through Sovereign bonds which are issued by the government of India or by ETF’s like:
  • Nippon India ETF GoldBees.
  • SBI ETF Gold.

• 50% in Nifty 50 Index Funds – If we look at the returns for few nifty 50 Index funds, it is roughly around 15% compounded for the last 5 years. It is roughly the same for any other best performing equity fund too barring few exceptions and anomalies. Hence, this half share of the original invested amount of 100 can be invested in this instrument. Few of the Nifty 50 index funds are:
  • IDFC Nifty Fund
  • HDFC Index Fund Nifty 50 Plan
  • SBI Nifty Index Fund

If an investor consistently follows the above investment strategy for a significant time, he will be able to meet all his designated financial goals without much change in asset allocation. He doesn’t have to time the market and doesn’t have to go through the stress of market cycles.

Above three segments of:

. Debt,

. Gold and

. Equity

will take care of returns over a period of time.

This is for investors who don’t have time to track and analyze the factors of different asset classes and then try to create alpha in returns.

Even the professionals, who do try to time the various financial instruments and go for diversification in the form of:

• Country
• Asset Classes
• Cycles
• New instruments like Cryptocurrency, NFT( Non Fungible Token), etc.

struggle to give more than 15-20% compounded return over a period of time.

Hence, the asset allocation provided above is a good investment solution for wealth and will meet various financial objectives of an investor.