Can a sportsman ever taste success without a proper plan and strategy in place? Strategy is equally important for winning the investment game. It serves as a roadmap for the rest of your investment journey. The right investment strategy can help you, especially when you are just beginning investing.
Let’s dive into some of these useful strategies.
Investment strategies for beginners
The most effective and essential investment strategy is to get started. Getting over the fear and taking control of your money is half the job done.
- Consider the long way home:
Instead of thinking of investing as a race, consider it a marathon. The buy-and-hold investment strategy aims at long-term investment. This helps you ride out short-term market volatility. Moreover, investing for the long haul helps you invest more thanks to convenient options like SIPs (Systematic Investment Plans) that enable you to invest small yet steady quantities over time.
Even if you start investing Rs. 5,000 per month at 30, you could invest a total of Rs. 18,00,000 in 30 years by the time you hit 60. This is just your principal capital! If you consider a hypothetical return of 10% or more, your investment would be valued at over Rs. 1 crore. You too can estimate your returns yourself with the help of an online financial calculator.
- Start investing early:
Financial planning is a life-long process, so the earlier you get to it, the better it can be. Starting early gives you the advantage of time, as stated above. Further, it gives you the benefit of the power of compounding when investing in mutual funds. To simplify this, your profits are reinvested into the fund to earn a higher yield. Over time, this can add up to a significant corpus and help you reach your goals sooner.
- Diversify optimally:
Knowing where to invest money is critical in mitigating risk. Diversification is an essential pillar of investment planning as it helps to keep risk in control. You can diversify your portfolio by adding different asset classes, such as equity, debt, cash, etc. Furthermore, you can invest in different sectors that are unlikely to react to the market fluctuations in a similar fashion. This can reduce risk and even maximise your returns.
- Do not ignore tax planning:
It is not only paramount to concentrate on your returns but also to know how your returns are taxed. Your ultimate profit is the one that reaches your bank account. So, consider options that can help you save tax. ELSS mutual funds or Equity Linked Savings Schemes can be a good pick as they offer a tax deduction of up to Rs. 1.5 lakh per annum under Section 80C of the Income Tax Act, 1961. These have a three year lock-in period, too, so your returns on redemption are taxed as long-term capital gains (LTCG). LTCG tax on equity funds is comparatively lower than short-term capital gains tax (STCG), which is levied at 15%. LTCGs up to Rs. 1 lakh/year are tax-exempt, and those above this limit are taxed at 10%.This can further lower your tax output.
Tax planning is a critical investment strategy that can many a time go ignored.
To sum it up
These strategies have helped numerous investors accomplish their financial goals with greater ease. You can incorporate them into your investment plan as and when they fit and see where it takes you.
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
