Let’s Talk Investing

Hello Readers!

Let’s jump right in and start learning about Investing. Today we’ll go through investing and two broad categories, followed by looking at some mediums through which we can Invest.

Risk comes with any form of Investing and with proper risk management strategies and rules in place, investing can grow our money exponentially.

Investing

Investing is when we put our money into assets to grow what we’ve put in.

Assets are resources, schemes, funds, and other forms of investing that usually give back to us more money than we put in. I say usually because investing in anything comes with risks to various degrees.

A very important disclaimer: There is no such thing as a get-rich-quick scheme. If you are approached by anyone trying to sell you such a scheme, especially with guarantees, stay away.

Fixed returns

These are low-risk, low-return investments like Fixed Deposits (FD). We must be familiar with these because banks offer these at 5-8% interest rates. Anything/anyone that offers more than FD returns comes with risk. If someone offers 9-10%, the risk is lower. If someone offers 15-20%, the risk associated with it is higher.

Flexible returns

The top companies in India (measured by the NIFTY 50 benchmark) have generated an average of 10-12% returns over the last 15-25 years. This itself is riskier than the fixed returns shared above.

However, the risk involved in investing in NIFTY 50 is lower in comparison to other investments.

There are a few reasons for that:

1. This NIFTY 50 list gets updated every 6 months. So no matter what, these 50 will always be the top companies in India.

2. The longer we stay invested, the less risk there is. Time accounts for the fluctuations in the markets and takes away the volatility.

3. The markets are biased upwards. Companies, Countries, Investors, Financiers, etc. all want to grow. This leads to entire economies growing and that’s why the markets are biased to go up in the long term. Long term is not a few years, but decades.

Investing Mediums

1. Fixed Deposits - These are some of the lowest-risk and lowest-return-generating investments. Usually offered by banks, these are quite good for when you need money instantly and to keep your money from losing value due to inflation. The only schemes that are more secure than an FD are government-backed schemes like the Public Provident Fund (PPF) and National Pension Scheme (NPS) to name a few. Recommendations: IndusInd and DBS Bank offer the highest interest rates as of today.

2. PPF/NPS - As mentioned above, these are more secure, but come with one major drawback. You cannot withdraw money as it gets locked in. With a PPF, the money gets locked in for 15/20/25/30 years depending on the timeframe of your choosing. With NPS, the money gets locked in until you’re 60/65 years old. There are benefits as well (these are tax-free and tax-saving investments) which will be discussed in a future blog. Recommendations: All banks have PPF accounts, and so does the Indian Post Office (mine is maintained at the India Post Office)

Other mediums of investing will be discussed, but only after going over what Risk is and how we can manage risk when investing in equity.

Recommended Reading:

For those who are further interested, some other mediums of investment are Mutual Funds, Gold, Stock Market, Crypto, Real Estate, ETFs, and Bonds. Groww has posted some good quality content about various topics on personal finance so this might be a good starting point.

One heading to look under is Fixed Deposits (for comparison between different banks) and the other could be Mutual Funds