Choosing to make an investment from all the different investment schemes available in the market can be quite confusing for beginners. But with the proper guide, making an informed decision can become easier.
Many people like to look into investments when they start earning and have some spare money at hand. Since the main objective of investments is creation of wealth, it is best to have some idea about market conditions before choosing the schemes to invest in.
Below is a comprehensive guide that will help beginners learn about the different schemes of investment as well as things they should consider before looking at investment plans.
Things to consider before making investment plans:
Since the market remains ever changing, it is quite difficult to have concrete investment plans. However, whether you choose to invest in stocks or get a SIP investment plan for mutual funds, you should consider the following things:
- Make a solid financial plan:
Making a financial plan involves determining your goals and knowing your risk appetite. When you have a clear idea about these factors, making a decision about investments becomes much easier. Also, researching about various facts related to investments and saving can help you to get financial security in the long run.
- Know about your risk appetite:
Every investment comes with some degree of risk. Even though high-risk investments have the potential to bring high returns, you should invest according to the degree of risk you are comfortable with. For instance, investing in securities is much riskier than putting your money in a fixed deposit, but the returns are much higher.
- Try to invest in a mixture of schemes:
Putting all your money in a single investment plan is not a good idea because the risk becomes much higher. Instead of investing in a mixture of different investment options helps you to counter the losses if one of your investment schemes fails.
- Have an emergency fund:
While it might seem tempting to put all your money in investments to get maximum returns, it is better to have an emergency fund at hand. Since life is unpredictable you may face situations like a period of unemployment, during which the fund can come handy.
With these four factors in mind, you can make an informed choice about the investment plan you want to put your money in.
Investment options to choose from:
There are literally hundreds of options when it comes to choosing an investment plan. However, there are four main categories that most people resort to when it comes to investments. They are:
Stocks refer to the partial ownership of any company. Often referred to as equities, the value of a stock increases when the company performs well in the market. Stocks are high-risk investment schemes, with a promise of a higher return.
- Mutual funds:
These are investment schemes that take the money from investors and in turn invest them in various schemes like stocks, bonds etc. investors can choose to invest a lump sum amount or avail systematic investment plans when it comes to mutual funds.
Bonds are investments that assure a steady flow of return to investors. Bonds are schemes that have lower risk than stocks with a lower rate of return as well.
This is the category that includes putting your money in a savings account or a money market account. This investment has the lowest risk and also the lowest potential returns.
Investors can thus choose to invest in any one of these plans according to their goals and risk appetite!