Importance and Avenues of Investing Money
It is said that money never sleeps. You can use this famous trait of money to your advantage if you recognise the importance of investing your money in different investment options available.
While hard work is the only way to achieve success in life, financial freedom and wealth generation often requires wise investments and diversified portfolio. People don’t become rich by saving, but by investing.
Importance of Investing
While savings help you preserve your money for your immediate needs, investing can help you secure your future. Smart investment choices can aid in generating long-term wealth that helps you plan a comfortable or even early retirement in some cases.
Besides, inflation silently erodes your wealth over the years in the form of diminishing value of your savings that reduces your purchasing power.
To understand the impact of inflation, consider an example where you have kept ₹1 lakh idle for ten years, and the rate of inflation during the same period has been 6%. Therefore, the actual value of your ₹1 lakh after ten years will be ₹53,862.
The only way to counter inflation is to compound your wealth at a rate of return that beats inflation.
Avenues of Investing
India is an emerging economy where retail investors can choose from a plethora of investment opportunities to maximise their chances of getting high returns on investments.
Investing in Equities
If the nuances of the stock market and changing prices of listed companies excite you, you can consider investing in publicly-listed companies. You can buy the equities of these publicly-traded companies and sell them at a higher price to register profit. However, the reverse is also true where you might have to sell equity at lower than your purchase price to register losses.
However, the stock market can provide significant returns if you know how to identify and invest in good companies. Moreover, equity investment is suitable for individuals with a higher risk appetite.
Risk-averse investors can consider investing in traditional bank term deposits such as fixed deposits and recurring deposits. Alternatively, investors can also consider investing in sovereign government bonds and treasury bills.
While these are some of the safest investment options available, the interest rate is significantly lower than market-linked instruments like mutual funds.
Hybrid Investment Plans
Hybrid investment plans aim to provide high returns on investments without taking too much risk. Such plans invest your money in both equities and debt instruments and periodically change your investment portfolio’s amount of equity exposure depending upon your age and risk-taking capacity.
For example, such an investment plan can have higher equity exposure to your portfolio, while you are young and gradually reduce your equity exposure as you grow old and approach retirement.
For all practical reasons, investing should be a priority as soon as you begin your professional career. Starting early and taking smart investment decisions can help you secure your future and build a retirement corpus to support your present lifestyle way past your retirement.