Things to keep in mind while starting to invest
Tarika Khosla is a young engineering graduate in her first job in a software company. She is ready to invest and has been reading up on how to manage her investments. She has been getting advice and tips from her friends and family on where and how to invest. However, she knows that they have had mixed success in their own investing. Tarika wants to go about selecting and investing the right way. What should she do to ensure this?
A simple rule that Tarika should follow while investing is to not commit a large sum of money to any investment unless she is convinced about it from her own experience. A good way to do this is to execute her investment plan in two stages, the first being the testing stage.
She should invest small amounts in the selected products to find out how they work. She should keep track of the returns, the cost involved and the ease with which the investment can be terminated or funds generated, transactions conducted and information obtained. Once she is comfortable with the product features, she can go on to the next stage, in which she commits to a long-term investment plan.
Tarika must, therefore, select products that should allow her to do three things. It must not require the commitment of a large sum. It must allow her to make periodic investments and withdraw or stop these if she chooses to do so without incurring any cost or penalty.
Not all products may allow Tarika to do all three to test them. For example, a PPF is a 15-year commitment. If Tarika finds that she would rather invest in products with higher yields, she has the option to invest just Rs 500 each month to keep the account going. On the other hand, a poorly selected Ulip may leave her with very few options and tie her to a high commitment in a product she may not want to continue with.
Tarika should start with investments in products that allow her the comfort of testing and do not require her to evaluate too many things. For example, she can consider ETFs which give her the exposure to equity markets without the need to either select stocks on her own or evaluate a fund manager's ability. Tarika's plan should be to increase the complexity of the products that she tests with time.
Source: ET
Best Regards
Prakash Nair
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