Investment is the process of buying assets so as to generate returns either in the form of ‘regular income’ or ‘appreciation of capital’. The money that lies idle with self or in a locker generates zero return. Even money which is deposited in savings bank account can only generate a return of 3-4%. In order to generate a higher rate of return, one should invest their hard earned money in a source that will generate higher returns and bears low risk.
Investment is necessary for all so as to take care of future needs of life. Investment should not be taken as a burden. No matter how big the requirement is in future, small regular investments may be enough to meet the need.
Following are few things that should be kept in mind by the beginners while making decisions regarding investment-
- 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. For fulfilling the long term objective, investment in share capital and stocks is founds to be of great benefit.
- Diversify your Investment
Investor should make investment in different class of assets and not in a single class of asset. It is usually done by the expert investors after carrying out all the research regarding classification and calculation of risk associated with an investment. This will in turn help an investor to limit their exposure to different risks.
- Level of Risk
The risk associated with investment option chosen should be analyzed carefully before making an investment. Analysis of risk will help an investor to avoid the investment in instruments that have the potential to incur huge losses.
- Insurance vs. Investments
For a lot of people in India, the first investment made is in insurance policies. Insurance policy will generate return at par with the savings account rate or a little higher. But if an investor wants to generate a higher return on their money, investment should be made to fixed deposits (FDs), mutual funds etc.
- Overcoming mental barriers
Prior to making an investment in assets, investor should first try to overcome few mental barriers regarding investment. These barriers are mostly faced by the beginners. Mental barrier that investors usually face is that they think they will not be able to afford the investment as it will require a large sum of money, or they delay the investment for tomorrow that never comes, or they try to avoid equities as they consider it to be risky.
- Study the market
Before making an investment in any asset, the investor should first study the market carefully for the basics and to understand the merits and demerits of various assets in which investment can be made. This will help an investor to assess the risk and take the correct decision regarding investment.
- Avoidance of leverage
Leverage simple means using borrowed money for investment purpose so as to increase the return on an investment. An investor, at beginner level, should always try to avoid the leverage.
- Don’t trust the Experts blindly or follow market trends
An investor should not follow the market trends or opinion of experts blindly without analyzing whether the market trend or experts opinion will fit into your investment plan or not. 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.
- Regularly monitoring investments
An investor should always keep a track of all major national and international events that have an impact their investment. They should rebalance their portfolio as and when it is required.
MS. BHAWNA THAKRAN
