Hope you have thought about your goals and written them down, as discussed in our previous blog.
In this blog, we will discuss how to invest and manage your investments to achieve your goals – the eighth step of the beginner’s personal finance checklist.
If you are new, you can look at the checklist here and read past blogs here.
Estimated read time: 3 minutes and 4 seconds
Hint: Learning how to dip and take out your cookie from a hot beverage is an art.
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Dip up, here we go!
After completing all the other steps of the beginner’s personal finance checklist, it’s time to focus on basic investments. If you are a beginner, you need to start investing as soon as possible.
Remember, these investments should be separate from your emergency fund. We hope you have already built your emergency fund and parked them safely. And also bought life and health insurance.
Few definitions before moving forward:
SIP – Systematic Investment Plan: Automating your monthly investment with ease. You can create a mandate to invest X amount of money every month in any funds.
STP – Systematic Transfer Plan: It helps to move your funds from equity to debt funds or vice versa with ease. Got any lump sum amount? Invest them in short-term debt mutual funds and use STP to move the funds into equity every month, like SIP.
Index Funds: These funds copy funds like NSE Nifty 50 and BSE Sensex 30 and invest in a stock market. An index fund is passively managed. No extra work for managers, so lower fees.
Passively managed index funds are famous because most active fund managers haven’t outperformed the market while charging higher fees.
ELSS – Equity Linked Savings Scheme: Set of mutual funds with flexi-cap investment style. Invest across small, medium and large-cap companies, majorly in large-cap.
You can avail a tax deduction of up to 1.5L every year by investing in these. Remember, there is a lock-in period of 3 years, better than the lock-in period of other tax-saving provident funds.
In general, we recommend investing at least 20% of your salary. You can diversify this investment into various index funds, ELSS funds to save tax, foreign index funds for exposure, gold, etc. Create SIP and invest in them every month.
If you have written your goals and segregated them into short-medium and long-term goals. Let’s see how you can invest.
Investment for short-term goals:
For short-term goals, you should only invest in short-term debt mutual funds. Though the returns offered by them are low, like around 7% they offer more stable returns than equity in the short term.
In the short term, we can’t expect our money to grow much without risk. So the priority is the safety of your money.
Investment for medium-term goals:
For medium-term goals, you can invest in both equity and debt mutual funds. The asset allocation in the early period can be 80% equity index funds and 20% debt mutual funds. But as you get close to your goal, you need to move your funds into debt mutual funds.
You can use STP to move your funds from equity to debt. If investing separately in equity and debt is a little confusing to you, you can invest in hybrid mutual funds. Remember, only invest in direct mutual funds. Avoid regular mutual funds!!!
Investment for long-term goals:
For long-term goals, you can invest 100% in equity index funds. This will give your money a chance to grow, and short-term market fluctuations won’t matter to you.
You can diversify your investments in nifty 50, nifty next 50, and other index funds. To get international exposure, you can invest in the Nasdaq 100 index fund.
And similar to medium-term investments, as you get closer to the goal, move your investments from equity to debt funds.
Important points to remember:
- Invest in Index Funds
- If investing in other mutual funds, only invest in direct funds
- Create SIP and invest every month
- Sell only when you get close to your goals, and you want to move your money to safety or for tax harvesting purposes
- Reviews your goals and investments at least every year
Also, we recommend you spend more time learning about personal finance. We have shared some links in the still curious section below. You can check them out and learn more.
Have a bias towards action and start investing. With this blog, we have covered all the 8 steps discussed in the beginner’s personal finance checklist.
Share this beginner’s personal finance checklist with your buddies.
Still Curious?
If you are like us, who likes to analyse a little more or check out content in different formats, well you are in luck. Below you can find some suitable content we found.
Abhi and Niyu – FIRST step to start Investing | Goal based investing explained
Zerodha Varsity – Personal Finance
Note: We don’t have any affiliation with them. We are sharing links only for educational purposes. The opinions expressed by them belong solely to them and do not reflect the views of Vrid.