Article

3 Words Every 20-Year Old Must Know While Investing

Priyanka Sharma

27 Mar 2018

There’s nothing more demarcating than the decade which starts when one turns 20. Most of you would agree that 20s acts as the pivot of anyone’s life! Also, there isno running away from the fact that this period can make or break your financial success.

Things that you do during this span will invariably influence the future. It stands true for finances as well. This makes it very important to cultivate a sound financial habit, and the apt time to do so is the when-you-turn-20 decade! Well, better late than never; even if you have seen through your 20s, you stilldo this exercise.

3 words

Budget

Althoughit is a cliché, it still makes the point that one should have a predefinedbudget. It might seem that you are being restricted to use your hard-earnedmoney in a certain way. However, it only helps you keep a tab on your spendingpattern. The budget makes your money go, where you want it to go. This is thetime to have a budget for you and to save a portion of the income. This bringsus to the next point – Save!

Save

Whatmost people do is that they earn, they spend it, and the residual is their savings.It should be the other way round, earn – keep aside your savings – spend! Borrowingfrom the idea of budgeting, make sure you have a separated the savings fromyour income. Try to minimise your expenses too. That way, you will be able toadd more to the savings kept aside initially. Keep building upon your savings.However, will savings suffice your future needs? The answer is plain no! andhence, the third habit you want to develop is to invest.

Invest

Meresavings are not going to help you in the long term. Have a broad outlook, investyour savings. Mobilising your money helps your money to grow. There are manyfinancial instruments to invest in. You probably can start with investing inmutual funds, or you can start by SIPs. In fact, SIPs work inlines with your savings (which is the second habit learned). Gradually you canexplore equity market, derivatives, etc. Consult a financial planner,have an investment plan.

Keepfollowing up on these habits, wishing you a happy decade.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 

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3 Words Every 20-Year Old Must Know While Investing

Priyanka Sharma

27 Mar 2018

There’s nothing more demarcating than the decade which starts when one turns 20. Most of you would agree that 20s acts as the pivot of anyone’s life! Also, there isno running away from the fact that this period can make or break your financial success.

Things that you do during this span will invariably influence the future. It stands true for finances as well. This makes it very important to cultivate a sound financial habit, and the apt time to do so is the when-you-turn-20 decade! Well, better late than never; even if you have seen through your 20s, you stilldo this exercise.

3 words

Budget

Althoughit is a cliché, it still makes the point that one should have a predefinedbudget. It might seem that you are being restricted to use your hard-earnedmoney in a certain way. However, it only helps you keep a tab on your spendingpattern. The budget makes your money go, where you want it to go. This is thetime to have a budget for you and to save a portion of the income. This bringsus to the next point – Save!

Save

Whatmost people do is that they earn, they spend it, and the residual is their savings.It should be the other way round, earn – keep aside your savings – spend! Borrowingfrom the idea of budgeting, make sure you have a separated the savings fromyour income. Try to minimise your expenses too. That way, you will be able toadd more to the savings kept aside initially. Keep building upon your savings.However, will savings suffice your future needs? The answer is plain no! andhence, the third habit you want to develop is to invest.

Invest

Meresavings are not going to help you in the long term. Have a broad outlook, investyour savings. Mobilising your money helps your money to grow. There are manyfinancial instruments to invest in. You probably can start with investing inmutual funds, or you can start by SIPs. In fact, SIPs work inlines with your savings (which is the second habit learned). Gradually you canexplore equity market, derivatives, etc. Consult a financial planner,have an investment plan.

Keepfollowing up on these habits, wishing you a happy decade.