Investment Strategy

Investment Strategy for Beginners – how to plan, save & invest in different segment

In this article, we will discuss about Investment Strategy for Beginners.


Investment Strategy for Beginners


As an investor, you need to follow the below steps before starting your investment journey which are as follows:


First of all, you have to prepare your per month income & expense sheet to have a better understanding. For example –  If your per month income is Rs 40,000 per month & household & other expenses is Rs 25,000 per month then your saving is Rs 15,000 per month.


a) There is a General Thumb Rule which says – An Individual needs to save & invest at least 15-20% of their salary. So, for example – If your salary is Rs 30,000 per month then you should save & invest at least Rs 4,500 to 6,000.


b) The Second Thumb Rule says – An individual need to invest (100 – their current age) in equity investments such as equity oriented mutual fund, shares etc. & the balance amount in debt fund or secured investment fund. So, for example – If your age is 30 then 100-30 = 70% of your investment should be part of your equity investment & balance 30% should be part of your debt & fixed investment.


c) It is a general tendency in India that after getting their salary credited to their account, the individual first pays their essential expenses as required & then they spend the balance amount on their own luxuries & after that any amount left with them, they will save & invest (Income – Expense – Personal spend = Savings). This is the wrong approach to save money, the ideal scenario will be Income – Savings (which should be equal to 15-20% of their income) = Expenses & Personal Spend.


d) Remember, there is no point having a large sum of money to be sitting idle in your saving bank account because the rate of interest in saving account is largely 2-3 % which will depreciate your money & also decrease your purchasing power.

India Inflation rate is around 5-6% annually, so if you put your money idle in saving bank account it will depreciate your money & also will reduce your purchasing power because the things which can afford at present will become expensive in the future years to come due to inflation rate.

Since your savings which barely gets a interest rate of 2-3% will reduce your money & purchasing power considerably.


e) Always remember you just don’t have to save the money but have to invest accordingly to get the desired return to build your wealth.


Investment Procedure


1. Set Your Objectives – Set your objective before starting your investment. Whether you want to invest for short time period (say < 3 years) or you want to invest for long time period (say > 3 years).

Setting long tern horizon can be a great benefit when investing in Mutual Fund & Share Market. Your investment portfolio will grow based on factors such as the amount of capital invested, the tenure of investment & the net annual earning on capital.

Hence, it is advisable to begin investing as early as possible as it helps you to save a significant amount of money & enjoy the power of compounding on your investment.


2. Find what is your risk tolerance (risk appetite) capacity?

The types of investments you choose will depend greatly on your risk tolerance (risk appetite). The best way to identify the risk is to conduct a comprehensive comparison between the different schemes of Investment.

Doing so will enable you to figure out what levels of risk each product holds & you can invest money accordingly.

Generally, there are 3 types of investors having risk taking capacity are classified:

a) Low risk-taking investors

b) Moderate risk-taking investors

c) High risk-taking investors


3. Whether adequate amount of emergency fund has been kept in place if required by the investors?

Generally emergency fund needs to be kept of around 6-8 months of individual earning of one month salary. Emergency fund has to be highly liquid assets, so that int can be withdrawn anytime 24*7.

It is preferable to keep Emergency fund in Fixed Deposits as it is highly liquid assets.


4. Whether proper cover has been taken by the investor by securing his life through any Life Insurance Policy or a Term Plan & proper Health Insurance Policy?

It is preferable for any investor that before starting your investment journey, you should have an ideally 1 or 2 Life Insurance policy or 1 Term Plan (in case of dependency level on earning member of the family is more).

It is also advisable to have a adequate health insurance policy to be taken in the name of main earning member of the family & health insurance should cover his spouse & children also, If any.


5. Based on the risk appetite & also considering investment diversification in mind, Investor should first invest their money in safe investment mode having fixed Rate of Return (RR) generating capacity which will give them a fixed RR & also the compounding effect on their return in the long run.

Always remember its the inflation adjusting return that you actually earn, hence you should invest in that investment instrument that give you inflation adjusted return.


Tips for smart Investment


a) It is preferable to first invest in fixed investment returns such as Public Provident Fund (PPF), National Pension Scheme (NPS) & Post Office Deposit Scheme.


b) Investment in fixed investment return gives you security of fixed earning even in dynamic & adverse situation which is guaranteed. Investment in PPF & NPS not only gives you the guaranteed returns but you can also claim deduction under section 80C & 80CCD (1B) of the Income Tax Act, 1961 amount to Rs 1,50,000 & Rs 50,000 at the time of filing of your Income Tax Return in the financial year in which investments are actually done.


c) Not only that, Investment in PPF & interest earned on it will be fully exempt from tax (lock in period of 15 years) & Investment in NPS & interest earned on it will be exempt from tax to the extent of 60% (lock in period till you attained the age of 60 years).


Some other Tips


1..  After Investing their money in fixed investment, the next step is to invest in Mutual Funds. Mutual fund investments are subject to market risk. But if you want to build your wealth in long run then you have to invest in mutual funds.

There are various categories of mutual funds where you can invest through diversification such as:

Large Cap Fund, Mid Cap Fund, Small Cap Fund, Flexi Cap Fund, Tax Saver Fund, Balance Advantage Fund & Hybrid Fund etc.


2.  After investing in mutual fund, the next step to invest in stocks through demat account, here you are purchasing shares of a company. Hence, first you should buy the blue-chip stocks such as Reliance, TCS, Infosys etc. to play safe & have some knowledge & understanding of share market. After that you can diversify your investment in purchasing other sector shares also.


Here are some investment knowledge that will prove useful 


  • There are different types of investors in India, hence, it is crucial to identify your tolerance for risk. The types of investments you choose will depend greatly on your risk tolerance.


  • Use an investment calculator to get a rough estimate of how the instruments you are planning to invest in will yield returns after their term is up. There are many investment calculators available for free online.


  • Plan your short-term & long-term financial goals, & pick the different types of investments that align with those objectives.


  • Diversify your investment portfolio, so it has a balanced mix of high-risk & low-risk investments.


  • Ensure that you have a retirement investment plan in place, because it’s important to save for your retirement years.


  • Review the different types of investments in your portfolio periodically (ideally in every 8-10 months) to verify if they continue to remain aligned with your personal goals.



Happy Readings!



Disclaimer: The information contained in this website is provided for informational purposes only, and should not be construed as legal/official advice on any matter. All the instructions, references, content, or documents are for educational purposes only and do not constitute legal advice. We do not accept any liabilities whatsoever for any losses caused directly or indirectly by the use/reliance of any information contained in this article or for any conclusion of the information.

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