First of all, congratulations that you thought of investing early in the stock market at a very young age. To inform you, Warren Buffet started investing when he was 11 years old.
However, there are other examples too who started late but made a great fortune for themselves.
Ultimately, it is not about when you start investing but how you start. So on that note, we will tell you the right strategy to invest your first 5,000 INR in the stock market.
Note: This is a quick disclaimer; read this blog for educational purposes only, and don’t take it as investment advice.
Top 5 Asset Classes That You Can Consider While Investing Early In The Stock Market
If you are a student who has recently earned some money from their internship and wants to start investing but is confused about different options and their relevance, this segment is for you. This segment will discuss 5 Asset Classes that you can consider while investing early in the stock market.
Mutual funds are the best solution to your savings and wealth creation goals. All it takes is discipline, time, and patience.
Do you know why it is the best? Because you can start investing in mutual funds with just 500 rupees monthly.
These monthly investments are known as SIPs (Systematic Investment Plans). You have to fix an amount you want to invest per month or a tenure you can fix.
If you are starting early and want to invest for the long term, it’s recommended to go for equity mutual funds.
If your risk appetite (the capacity to take the risk) is low, picking debt mutual fund schemes is the best.
Public Provident Fund
Public Provident Fund (PPF) investment option is backed by the government that provides guaranteed returns.
The minimum requirement in this instrument is Rs. 500 per annum. This means one can start investing in PPF with an amount as low as 500 INR. While the maximum investment you can put is Rs. 1.5 lakh.
PPF also allows monthly investments in PPF starting from 500 monthly. Recently, the Government of India revised the rate of return on PPF, as dictated by macroeconomic scenarios. Currently, the rate of return is somewhere around 7.6%.
The investment made in PPF and the return earned from those investments are exempted from taxation. Furthermore, the investments made in PPF are eligible for tax rebates under Section 80C of the Income Tax Act.
The PPF has a maturity period of approximately 15 years. You can also do withdrawals or premature closure under exceptional cases of the daughter’s marriage and medical treatment.
The recurring deposit is another most popular investment option among conservative investors. It consists of saving a fixed monthly installment with a year horizon of 10 years. As a result, one can invest as little as Rs. 100 in a recurring deposit account.
Currently, the rate of return on recurring deposit accounts ranges from 6% to 7% and varies according to the bank.
Similar to PPF, the recurring deposit is also a guaranteed return investment plan, thus not eligible for a tax rebate.
If you earn any interest from an RD, it will be added to your income and taxed accordingly.
National Saving Certificates
Another investment instrument is NSCs from the Department of Posts. These certificates are sold in post offices in denominations starting from Rs. 100 to Rs. 10,000.
NSCs currently fetch you an interest rate of about 7.6%, compounded annually. However, the total amount with interest is payable at maturity.
Generally, an investment of Rs. 100 grows to about Rs. 144 in five years. Deposits made in NSCs qualify for tax exemption under Section 80C of the Income Tax Act for the financial year the investment is made.
Exchange-Traded Funds or ETFs are funds – a portfolio of securities such as stock – listed on a stock exchange.
You can trade ETFs like stocks. However, it is free from any lock-ins. It has tiny exit loads and can be purchased in any quantity you want.
ETFs, typically, have an option of investing in both; equity and gold. Therefore, you can consider ETFs as an option to make periodic equity or gold purchases if you have a moderate to high-risk appetite.
This blog shows you the top 5 best investment instruments for those just starting with their investment journey.
Please make sure you invest after considering both; the merits and demerits of these instruments. Also, don’t forget to join Stockative – India’s Exclusive Social Media Platform for Stock Traders and Brokers. We hope you will begin investing early in the stock market.