First Baby Steps in Investing

You are a working professional and have started your career. Early earnings have been spent buying that iphone, ipad, those special running shoes and in a holiday to Malaysia with friends. But at the back of your mind an alarm starts to ring! 

There is the thought, “I must plan for the future, save and build my assets. But… where do I start… What can I do with the few grand that remains at the end of the month?"

Your initial steps now would go thus:

First you require a PAN. In all probability you already have a PAN which you have submitted to your employers. Here's where you can apply if you do not have one. It is a simple process.

Second, make sure you get yourself KYC Compliant to apply in mutual funds. KYC compliance is necessary to apply in any Fund.

Third, open a demat account with a Depository Participant. It’s not too difficult. Many banks offer the service and check with your banker if you can open a demat account. Having an account is essential to purchase debentures, tax savings bonds and later equity shares.

How much to set aside:

Financial planners recommend setting aside a minimum of 10 to 15 % of your gross income to save or invest systematically at regular intervals for the future.  A systematic investment plan (SIP) in a mutual fund is recommended to start your investing life. SIP is a plan where an investor makes regular, equal payments into a mutual fund. The advantage of an SIP is that you can set aside small amounts – the few grand remaining - to suit your convenience.

Power of compounding:

Check out This SIP Calculator . Even Rs 3000.00 set aside every month from the start of your career for 30 years will amount to > Rs. 1 Crore at a reasonable 12%. Save Rs. 10000 and the amount is 3.5 Crore. Start now!!

Mutual Funds:

Do take the help of a financial advisor and assess your risk profile and decide what percentage of your savings you wish to put in Mutual Funds representing equity and what percentage in FDs etc. representing debt. Having understood what a mutual fund is, you know that investing via an SIP is the best method to avoid timing the market and have a disciplined approach to investing and you can start with small amounts.

You may consider starting with about 3 schemes in different funds.  So, if you are investing Rs 6,000 a month, invest Rs 2,000 each into three different schemes. You could start with one Large cap Equity Scheme, one Multi-cap Equity Scheme and one Balanced Fund.

Even while taking the help of an advisor, it would be good for you to track and check fund performance and reviews. Some websites you can go to for reference on Fund performance are - Mint 50 , Money Control, Value Research. There are many more which offer useful data and review.

While filling in the forms, use the auto-debit option for direct debit of your bank account. This way, the amount is automatically deducted at the beginning of the month itself, preventing you from overdrawing!!! Look here for Hints for filling SIP forms.

Small Saving Schemes:

Investing PPF is a must for tax benefits – Read this comprehensive piece for knowledge on investments in the Small Savings Schemes - Small Savings - Big Benefits

Bank Deposits:

See this article in the Business Line on The Best FD Rates for knowledge of the rates now.

Great!! You’ve now taken your first steps to invest in a financially secure future. Do remember to monitor your investments regularly.

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