Investment is an important habit which should be cultivated by everyone at an early age. There is a wide variety of investment options available. However, the risk appetite is also a factor to be considered. For a beginner, it is better advised to go with the low-risk profile plans. There are several options available, one such example is the fixed deposit. Before investing in a plan, it is better to examine all your options and their pros and cons. Let us explore various investment plans for a beginner investor-
Fixed Deposit (FD) is considered one of the best investment options for beginners. This is because an FD offers you a good interest on the invested amount with low to no risk involved. All you need to do is open an FD account with your preferred bank. Fixed deposits come with predetermined interest rates and fixed tenures. In case of an emergency, you can withdraw the money by paying a penalty fee.
Benefits of a fixed deposit:
- Get a fixed return on the amount invested
- Zero risk associated with the fixed deposit
- Market fluctuations have no impact on the fixed deposit
- Investors can avail loans and credit cards against fixed deposits
Things to keep in mind when investing in a fixed deposit:
- There’s a penalty on premature withdrawal
- The interest rates vary from bank to bank
A savings account is a risk-free account where all you have to do is open a savings account with your preferred bank and start investing money in the account. The bank will offer a certain interest on the balance, and this interest will add to the savings in your account. You can relax and see your money grow over time. However, you must know that interest through a savings account is not too high since the risk associated with it is also zero.
Benefits of a savings account
- No risk associated with the savings account
- You can invest and withdraw money anytime as per your needs
- Pay for bills without any hassle by using debit or credit cards
Things to keep in mind when opening a savings account:
- You may be required to maintain a minimum balance
- Be aware of the service charges
- Compare the interest rates of different institutions before making a decision
Mutual funds are a popular platform for investment, not only for beginners but also for experts. Mutual funds can be a great option for starting a good and positive investment future. There are various brokers that offer highly organised mutual fund investment plans. In a mutual fund, the funds from various investors are collectively invested, and the profits are distributed among the investors in the proportion of their investment. You get to choose from a plethora of options to invest in.
Benefits of a mutual fund
- A mutual fund investment offers liquidity. This means that you can take out your invested money at any point
- You can choose from a diversified portfolio and make the best decision
- You get the guidance of an expert who pools money and invests smartly for higher returns
- You are not obliged to invest a huge amount of money at once. You can choose to invest in small amounts with complete flexibility
Things to keep in mind when investing in mutual funds:
- Different kinds of mutual funds will have different levels of risk
- The returns you get do not stay constant
For a beginner, an ETF (Exchange-Traded Funds) is one of the safest ways to start an investment career. This is because the risk associated with an ETF investment is low, and it offers you a diversified portfolio with a myriad of stocks and securities options. Investing in ETFs can also give you tax benefits.
Benefits of ETF investments:
- You get several options to choose from. The diversified portfolio also gives you to freedom to make a better decision
- The price of an ETF holding is updated and changes throughout the day, unlike a mutual fund
- You can also trade in Future and Options with ETF
Things to keep in mind when investing in ETF:
- ETFs generally come with an annual fee
- Invest in ETFs that have a greater liquidity
A pension scheme is a form of investment plan which acts as a retirement fund. It is one of the easiest and low-risk profile investment options introduced by the Indian government. Next to a fixed deposit, pension schemes are another most popular and highly chosen investment plan. With minimum and regular investment, you can expect a steady source of income post your retirement.
Different types of pension schemes are-
- NPS: National Pension Scheme
- EPF: Employee Provident Fund
- PPF: Public Provident Fund
- Annuity Plans, etc.
Things to keep in mind when investing in pension schemes:
- Make sure you factor in inflation
- It is advisable that you stick to guaranteed returns
- The pension amount should cater to your expenses
- Tax implications must not be ignored
Investment at the beginner level needs to be low on risk. Build your risk appetite slowly and steadily towards high-risk investments further in the future. Fixed deposit is one highly preferred option followed by various others like mutual funds, ETFs, etc. Choose from the plethora of options available and make a wise decision considering your investment capabilities and risk appetite.