invest money

Let’s first understand why to invest money. Have you ever thought about your future or about your retirement? maybe today you are earning a decent amount and living a good life but ask yourself am I financially independent? which means that if you stop working would you be able to survive?

For 90% of people in this world, the answer will be NO. So, what should one do? do you need to do multiple jobs or do you need to work overtime just to earn more and save more?

how to invest money

Really you don’t. It doesn’t matter how much money you earn actually what matters most is how much you save out of what you earn and how do you invest the amount you save. In this article, you will get your answer to questions like

  • How to invest money?
  • Best way to invest money
  • Where to invest money
  • Ways to invest money
  • Where to invest money to get good returns

1. Different Ways to Invest money

Before understanding different ways let’s first understand what is the inflation rate?

The rate at which prices increase over time, resulting in a fall in the purchasing value of money. Suppose, the inflation rate is 10% then the general level of prices for goods will rise from 10%.

Check inflation rate for your country

In conclusion, your money decreases over time if you have 100$ now then after one year they will be 95$ if the inflation rate is 5% so, in order to avoid this you need to earn at least 5% in this scenario to beat inflation.

1.1 Investing money in Banks

Yes, you can definitely invest your money by keeping them in your bank but keep in mind that the interest you can get from the bank would be around 3.5-4% annually which is very less.

In some countries, the inflation rate is very high i.e. around 8-10% so, investing in a bank is an in-short result in loss.

But if you want to play safe, bank would be your good option but still I don’t prefer it as the return is very low.

You will get the return from the bank on the average of your amount you had in your bank for the April-March cycle.

If you have average of 36000 in your bank for a year then you will get around 1260 as interest

1.2 Investing money in Fixed Deposit

A Fixed Deposit is something that you can opt to get around 6.5-7% annually return on investing money.

As the name suggest you need to deposit or invest money for a fixed period of time let’s say one year.

You can invest in FD by applying physically from your branch or through the mBanking app.

If you have invested around 36k in FD for 1 year then you will get around 2340 as interest.

1.2.1 Withdrawing FD

Once your money is matured it is automatically transferred into your bank account associated otherwise you can withdraw it in between in case of any emergency from either your bank branch or through mBanking

how to invest

1.3 Investing money in Recurring Deposit

Recurring Deposit is as same as a Fixed Deposit having the same interest rate of 6.5-7% only the difference is in RD you can invest money on monthly basis.

For example, if you want to invest 36000 for 1 year then monthly you need to pay 3000Rs that can break down in this way:

  • 1st month: 3000rs deposited for 12 months at 6.5%
  • 2nd month: 3000rs deposited for 11 months at 6.5%
  • 3rd month: 3000rs deposited for 10 months at 6.5%
  • 4th month: 3000rs deposited for 9 months at 6.5%
  • 5th month: 3000rs deposited for 8 months at 6.5%
  • 6th month: 3000rs deposited for 7 months at 6.5%
  • 7th month: 3000rs deposited for 6 months at 6.5%
  • 8th month: 3000rs deposited for 5 months at 6.5%
  • 9th month: 3000rs deposited for 4 months at 6.5%
  • 10th month: 3000rs deposited for 3 months at 6.5%
  • 11th month: 3000rs deposited for 2months at 6.5%
  • 12th month: 3000rs deposited for 1 month at 6.5%

After 1 year you will get interest of about 1266Rs

1.3.1 Withdrawing RD

Once your money is matured it is automatically transferred into your bank account associated otherwise you can withdraw it in between in case of any emergency from either your bank branch or through mBanking

1.4 Investing in Provident Fund

PF is a mandatory, government-based retirement scheme for employees who can contribute a part of their income towards this pension scheme, every month. Every month a part of that income get accumulated in that fund.

This fund gives employees a return of 8.65% annually

Suppose you invest 3000 per month from your income then in one year you will accumulate around 3000*12 that is 36000 and the interest you can get is around 3114Rs.

Your employee should enroll you in PF directly, you don’t need to do it manually but if your employer doesn’t do it for you then you can enroll yourself by following these steps.

1.4.1 Withdrawing PF

  • Unlike a bank account, during employment, you cannot withdraw money from the EPF account. EPF is a long-term retirement savings scheme.
  • In the case of an emergency such as a medical emergency, house purchase or construction, and higher education one can withdraw a partial amount. Partial withdrawal is subject to limits depending on the reason. The account holder can request online for partial withdrawal.
  • Although the EPF corpus can be withdrawn only after retirement, early retirement is not considered until the person reaches 55 years of age. EPFO allows withdrawal of 90% of the EPF corpus 1 year before retirement, provided the person is not less than 54 years old.
  • The EPF corpus can be withdrawn if a person faces unemployment before retirement due to lock-down or retrenchment.
  • The EPF subscriber has to declare unemployment in order to withdraw the EPF amount.
  • As per the new rule, EPFO allows withdrawal of 75% of the EPF corpus after 1 month of unemployment. The remaining 25% can be transferred to a new EPF account after gaining new employment.
  • As per the old rule, 100% EPF withdrawal is allowed after 2 months of unemployment.

1.5 Investing money In PPF

Public provident fund scheme is ideal for individuals with a low risk appetite. Since this plan is mandated by the government, it is backed up with guaranteed returns to protect the financial needs of the masses in India. Further, invested funds in the PPF account are not market-linked either.

It can gives you return of around 7.9%

PPF account has a lock-in period of 15 years on investment, before which funds cannot be withdrawn completely. An investor can choose to extend this tenure by 5 years after the lock-in period is over if required.

You can invest a minimum of Rs. 500 and a maximum of Rs. 1.5 Lakh in a provident fund scheme annually

Both offline and online procedures are available for an individual provided he/she meets the requisite parameters mentioned in the eligibility criteria. One can visit the portal of a chosen bank or post office to activate PPF online.

All the above ways mentioned are related to low or no risk. Now, we will discuss some ways which would have some risk associate with them.

1.6 Investing money in Share Market

Let’s first understand what is share market? a share market is a place where you can Buy/Sell shares of a particular company. The basic funda of the share market is to buy shares at a low price and sell it at a higher price.

Share represents a unit of ownership of the company from where you bought it. For example, you bought x shares of Rs. 200 each of ABC company, then you become a shareholder of ABC.

By buying share, you are investing money in the company. As the company grows, the price of your share too will increase. You can get profit by selling the shares in the market. There are various factors that affect the price of a share. Sometimes the price can rise and sometimes it can fall.

share market

There is no fixed return amount as it depends on company performance. Moreover, it is risky you can either get a 100% return or even you can get negative returns.

Why at all a company sells its shares to the public? A company requires capital or money for its expansion, development, etc. and for this reason, it raises money from the public. An Initial Public Offer (IPO) is a process by which a company issues shares.

1.6.1 Buying and Selling shares

Where do all these buying and selling happen? NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). SEBI Regulates two major stock exchanges in India.

These are like two different shops where you can buy/sell shares but not directly you need a Depository Participant (DP). The depository participants generally are banks or stockbrokers like Zerodha, 5paisa, Upstox, etc

For started buying/selling shares you must need a Demat account or dematerialize account that means an account where your shares can be stored. Some DP like Upstox, Zerodha provides both a Demat account and the trading platform.

Market timings are 9:30 IST to 15:30 IST

1.7 Investing money in Mutual Funds

What basically is mutual funds? Suppose you and do other individuals have some money to invest. There is this professional or a company that knows the market and has a fair idea and experience of investing. They will collect everyone’s money and invest it in stocks, money market instruments in various ratios. This is a mutual fund. They save your time and trouble to do research. They have dedicated professionals round the clock doing research and studying the market. So they definitely know more than a nonfinancial person. There are various categories and one can invest, depending on the need, time of requirement to achieve goals and risk appetite. Some of them are

 mutual funds
  1. pure equity funds: more than 95% in equity high risk and high returns. Early young investors. Tip: keep your money for a minimum of 5 years to get good returns.
  2. liquid funds: as the name suggests highly liquid with low returns than other funds. It’s better to put in liquid funds rather than an FD.
  3. index funds: follow an index and will give return little.less than the index.
  4. Hybrid: Mix of equity and debt instruments. The ratio varies according to your risk appetite. Good for people planning retirement.

There are two ways to invest money in Mutual funds, Lumpsum and SIP(systematic investment plan)

SIP stands for a systematic investment plan wherein you do a disciplined investment at regular intervals in a particular MF. Every time you invest a sum you are allocated units. These units have a value called NAV which is determined by the market. If the market is low you will get more units and vice versa. This is very beneficial because it works on rupee cost averaging. You earn more units when the market is low and high returns when the market is high. It lowers your risk and gives high returns.

Mfs are a good way to diversify your risk and SIP Instill in your disciplined investment practices.

Tip: do not panic when the market goes down and don’t stop investing. It’s the best time to invest. The market has a pattern to go up and down which we can’t control. What we can do is keep investing regularly.

1.7.1 Buying/Selling MF

For buying selling MF you need to have some apps like

  • KFinKart- Investor Mutual Funds.
  • Zerodha Coin.
  • ETMONEY Mutual Fund App.
  • Groww- Mutual Funds App.
  • Paytm Money Mutual Funds App.
  • KTrack mobile app by Karvy.

For every MF you are going to see NAV which stands for Net Asset Value which is the value of one unit.

1.8 Investment in gold

Yes, it is the traditional way of investing money our mom’s their moms have at least one jewelry in their almirah which is made of gold

There are a plethora of precious metals, but gold is placed in high regard as an investment. Due to some influencing factors such as high liquidity and inflation-beating capacity, gold is one of the most preferred investments in the India scheme, etc.

investing in gold

Though there are times when markets see a fall in the prices of gold but usually it doesn’t last for long and always makes a strong upturn.

1.8.1 How to Invest money in Gold: Best Gold Investment Plans

Coming to the most important part which deals with – “How to invest money in gold.” Well, there are some conventional and modern types of gold investments preferred by people. In conventional forms, it was just buying physical gold in the forms of jewelry, coins, billions, or artifacts. The scenario has changed nowadays and investors have more options to invest such as gold ETF and gold funds.

Gold ETFs (Exchanged Traded Funds) is similar to buying physical gold but the only difference is you don’t actually buy the physical gold. You don’t have to go through the hassles of storing the physical gold, instead, the gold bought is stored in Demat (paper) format. On the other hand, gold funds deal with investing in gold mining companies.

Let’s delve a bit deeper into the differences between the basic gold investment methodologies, Viz.

  • Physical Gold
  • Gold ETFs (Exchanged Traded Funds)
  • Gold Mutual funds
  • Sovereign Gold Bonds

1.9 Real Estate

Real estate investing involves the purchase, ownership, management, rental, and/or sale of real estate for profit

A real estate is an asset form with limited liquidity relative to other investments, it is also capital intensive

1.9.1 Rental Properties

One can buy a property and become a landlord of the property to rent it in monthly manner. That gives them a good return overtime and make them to increase their property value in long run.

How much rent you can charge depends on where the rental is located. Still, it can be difficult to determine the best rent because if you charge too much you’ll chase tenants away, and if you charge too little you’ll leave money on the table.

1.9.2 Flipping Houses

Flippers buy properties with the intention of holding them for a short period—often no more than three to four months—and quickly selling them for a profit.

  1. Repair and update. With this strategy, one can buy a property that values will increase in a shorter span of time with certain updates and repair Ideally, you complete the work as quickly as possible and then sell at a price that exceeds your total investment (including the renovations).
  2. Hold and resell. This type of flipping works differently. Instead of buying a property and fixing it up, you buy in a rapidly rising market, hold for a few months, and then sell at a profit.

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