Investment is the process of buying assets so as to generate returns either in the form of ‘regular income’ or ‘capital appreciation’. The money that lies idle with the person or in a locker generates no return to the investor. Even money deposited in savings bank account can only generate a return of 3-4% per annum. In order to generate a higher rate of return, one should invest their money in a source that will generate higher returns and bears a low degree of risk.
Investment is necessary for all so as to take care of future needs of life. Investment should not be taken as a burden. Small regular investments may be sufficient to meet the requirement, no matter how big the requirement may be in the future.
One should start investing at an early age so as to take full advantage of long-term investment horizon. The investor at an early age can go for aggressive approach of investment because if something goes wrongs, they would still have enough time to recover from that loss and make profits thereafter. Therefore, investing at an early age is considered to be a key to make most of the investment opportunities.
Regular investment can help you save a significant amount of money over a period of time along with avoidance of financial risk. Following are few things that should be kept in mind by the beginners while making investment decisions-
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Setting of Objectives
Prior to making an investment, one should first set their goals. The sources in which investment is to be made depends upon the objective, i.e., whether they are long-term or short-term objectives. Investing in share capital and shares is found to be very beneficial to meet the long-term objective.
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Diversify your investment
Investor should invest in different class of assets and not in any one class of asset. This is usually done by expert investors after doing all the research regarding the classification and calculation of the risk associated with the investment. This in turn will help an investor to limit his exposure to various risks.
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Level of Risk
The risk associated with the chosen investment option should be carefully analyzed before investing. Risk analysis will help the investor to avoid investing in instruments that have the potential to incur heavy losses.
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Insurance vs. Investments
For many people in India, the first investment is made in insurance policies. The insurance policy will generate returns equal to or slightly higher than the savings account rate. But if an investor wants to generate higher returns on their money, then they should invest in Fixed Deposits (FDs), Mutual Funds etc.
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Overcoming mental barriers
Before investing in assets, the investor should first try to overcome some mental hurdles regarding investment. These barriers are mostly faced by the beginners. The mental hurdle that investors usually face is that they feel that they will not be able to afford the investment as it will require huge amount, or they delay the investment for tomorrow which never comes, or they try to avoid equity because they believe it to be risky.
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Study the market
Before investing in any asset, the investor must first study the market carefully for the fundamentals and understand the merits and demerits of various assets in which one can invest. This will help the investor to assess the risk and take the right decision regarding investment.
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Avoidance of leverage
Leverage simply means using borrowed funds for investment purpose so as to increase the return on investment. An investor, at initial stage, should always try to avoid the leverage.
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Don’t trust the Experts blindly or follow market trends
An investor should not blindly follow market trends or expert opinion without analyzing whether the market trend or expert opinion will fit into your investment plan. If it is done blindly, then an investor will end up purchasing the stock that they don’t want and selling the stock that they wanted to retain.
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Regularly monitoring investments
An investor should always keep an eye on all the major national and international events that have an impact on their investments. They should rebalance their portfolio as and when it is required.
