Before you gulp up ideas on the options that you might or might not have, be assured that you can never be too young to invest.
Investing can, of course, seem a tad bit intimidating, and in the beginning, it might seem a little difficult, almost like a new, strange language to you, but you need to make sure you don't let the idea overpower you in disruptive ways. You need not make a career out of it. Bulking up your savings for your retirement is necessary and you can also use it to make some extra money or to just be on a safer side when you take up future endeavors.
Hence, here are a few basics of investing that should help 25-year-olds like you find clarity on all your best investment options before you tap on wood thrice and give it a solid try.
Factors determining investments
Investments depend on plenty of factors like your present financial situation, your future financial goals, risk-taking capabilities, your age and many more. If getting maximum returns is your goal, equity mutual funds, where professional and qualified fund managers can help you with your investments in stocks might be one of your best options.
If you're looking for a more disciplined investment option, then opt for the SIP or the systematic investment plan, where you can regularly invest money in a systematic way might be one of your best bets. This can be especially advantageous to you because of its Rupee cost averaging feature.
Important things to keep in mind before you invest
The very special thing about investments is that they are one of the very few ways to keep up with inflation. You can successfully outpace inflation if you could grow your money fast enough, which investing will definitely help you with.
If you have heard about investments being risky, you need to understand the fact that anything that is powerful enough to profit you is. You could either lose or gain money from your investments but just because it's risky does not mean you should not try, because playing it safe all the time will definitely not get you rich.
Some clarity on investment jargons
- Security: If you've heard people talk about "securities" and understood nothing, know that securities are actually financial instruments that is often a catch-all term used to address things like bonds or stocks.
- Stocks: A stock is actually a tiny piece of a company. So when you buy one you'll get part ownership of that company by, not a lot, but a little that definitely holds some importance and can yield to you greater amounts of rewards or losses.
- Bonds: When you purchase a bond, you are giving a loan of that amount to the organization. This means that because you are loaning your money to an entity, they are responsible to pay you back with the said interest after a fixed period of time.
- ROI or Return on Investment: This gives you an idea about the performance of your investment. When you calculate the ROI by dividing the gains of your investment with its costs, you will find out how much money you are making.
About the investment process
- Fee: Investing isn't free, brokers charge you fees on you buying on selling the instruments. The fee varies based on the type of investment and the service provider's fee structure.
- Help is available: Mutual funds are groups of securities collated by professionals fund managers. They take care of the investments for you so that you can diversify your investment without having to worry about doing it yourself and losing money.
- Taxes: You have to pay taxes based on the profits you make from the sale of these assets. The rates depend on the category of shares you invest it, so if you are investing in equities, your short-term capital gains (STCG)- as it is called- are taxed at 15%. Long-term gains (equity investments over a year) are tax-free up to a limit of Rs lakh and charged at 10% if your profits exceed the limit. So do look into the tax implications before you invest.
About your investment strategy
Starting early will prove to be your biggest advantage. In your 20s, whether you lose or gain, you will always have some more time to correct things or just enjoy piling up your wealth.
You need to plan for a longer horizon in time when you invest. With patience and time, you might gain significantly from your investments even in volatile market conditions by selecting suitable funds. Plan and set goals while investing, and consult experienced and qualified financial advisers to play it safe.
Your best investment bet?
1. Save your taxes by investing in ELSS, equity-based mutual funds, or any tax savers through SIP.
2. You can also directly investing in favorable and well-researched stocks.
3. Try ULIP link insurance instead of the same old general LIC Policy.
4. Invest money to create an emergency fund that could be equivalent to say 6 Months salary, to keep yourself prepared in unexpected circumstances like losing your job.