How to make smart investments on a small budget
There is a common misconception, particularly in the realm of personal finance, that making money is directly linked to saving money. The more than one can possibly hoard, the more they are making. Unfortunately, this isn’t strictly true. While having a large bank balance might be reflective of liquidity, it is also susceptible to drainage – particularly if you don’t have job security or alternative sources of income.
But you don’t need to be a financial whizz to be able to recognise a good investment opportunity. Nor do you need to have a hefty sum in your account to be able to invest. Small, but smart, investments actually rely more on consistency than lump sums to be able to give you fruitful gains. Whether you’ve just gotten your first job, or you’re well into your fifties, investments are a great, secure (yes, secure!) way to earn more money.
Risk Profile
The word “risk” might sound scary, but understanding it can help you avoid it as much as possible. In order to do that, you need to know what your risk profile is. Simply put, an individual’s risk profile is how much will they have to take risks. In the case of investments, the risk profile determines how much they can play around with what and how much they invest.
This “willingness” to take risks is not always a personality characteristic. A risk profile is built on the basis of your age (to gauge how long the investment can be), your financial situation (in order to decide how much you should invest), and your job security (to determine liquidity). For instance, a younger individual with a secure job is able to invest for longer in smaller increments. On the other hand, someone in their middle age might have to keep aside savings for debt payments, children’s education, and other necessities.
Once you’ve determined your risk profile, you can then look into smart investment options for your specific budget.
Smart Investment Options for a Small Budget
1. Mutual Funds
Mutual funds are a safe way to invest in the stock market if you don’t have the knowledge about equity investments. While we do recommend that you learn more about the market and how to make your own investment choices in specific companies, a small- or mid-cap mutual fund is a good place to start.
The benefit of investing in a mutual fund is that your stock portfolio is very diversified. It’s recommended to opt for a SIP (systematic investment plan) to even out your dividend and yields across market fluctuations, especially if you’re a beginner investor.
2. Insurance and Government Schemes
The government has created a lot of opportunities for investment. Some of these are funds that you might already be investing in, through your employer. One of the most well-known ones is the PPF (Public Provident Fund). Other options include the NPS (National Pension Scheme), and NCS (National Savings Certificate).
These are great if your investment contribution is very low, and they function as good retirement savings.
3. Gold Bonds
Gold is a much-loved investment option in India. But you no longer need to rush to buy jewelry and coins or find a storage locker. Rather, you can invest in gold bonds. Gold bonds are much more secure since there is no expense in buying actual metal or any kind of metalworker charges.
Moreover, gold bonds (unlike real gold) are free of GST charges, too. Gold bonds have very attractive interest rates, and they’re all guaranteed by the Government of India to ensure the safety of your investment.
4. High-Yield Accounts
An HYSA (High Yield Savings Account) is a great mode of passive income. If you’re putting aside cash in a savings account, you should do your research to find an account that offers you minimal charges and maximum returns. Many banks have varying interest rates on savings accounts, so you should find one that works great for you.
5. Fixed Deposits
While FDs are not a recommended form of investment for a very young investor, they can be quite beneficial right before you take out other kinds of debts. Their interest rates are higher than savings accounts, and they’re a more secure form of saving money compared to an HYSA. They are extremely straightforward to use, and many have good interest rates, as well! If you’re worried about liquidity, then some banks offer FDs with premature withdrawal options, as well.
Ultimately, you have to make the decision on what to invest in. Just remember that you have to consider your debts, your retirement plan, and emergency funds before jumping into any investment. More importantly, make sure your investments are highly diverse so that you’re not facing losses because one industry is getting affected.
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