How to start investing? This is a common question asked by many new investors. Many new investors think that they require a large amount of money to get started investing.
Who said you require a large amount of money to get started investing?
Because most people think that they need a lot of money to get started investing.
But that is not true. Suppose you have Rs. 5000, again the question is how to start investing. The simple answer to how to start investing is to start investing early with a small amount.
In fact, I started investing with just Rs. 5000 at my early stage. Later I added small amounts at regular intervals.
It is possible to start investing when you are a high school student, a college student, or when you are in your 20s or 30s. But you should have an idea on how to start investing.
You can start investing with just Rs. 5000 now. Later, you can add small amounts whenever you have money available.
And now the question is how to start investing and where to start investing?
The sooner you start, the sooner you accumulate a lot of money in the long run.
Mr. Rakesh Jhunjhunwala started investing with just Rs. 5000. Now he has several thousand crore rupees of property.
If you invested Rs. 5000 in Bajaj Finance stock in 2002, it would be worth over Rs. 42 lakh today. Or if you invested in Kotak Mahindra Bank stock in 2001, it would be worth over Rs. 37 lakh today. And that’s just if you invested Rs. 5000 once.
Imagine if you invested Rs. 5000 monthly since 2001 in Kotak Mahindra Bank? You’d have well over Rs. 14 crore today.
From the above example, it is clear that if you know how to start investing, you can create wealth in the long run.
Confidently, that is very much inspiring for you and demonstrates that you do not need a lot of money to start investing.
The complex part of starting to invest is simply getting started.
So why are you waiting?
If you ask the same question, how to start investing …. how to start investing …. how to start investing …. how to start investing many times, there is one single answer. And that is: start investing early.
Let me explain how to start investing with just Rs. 5000.
How to Start Investing with Just Rs. 5000
Suppose you have an initial amount of Rs. 5000. And you want to invest in.
But how to start investing?
I am going to tell you the top five options where you can start investing with just Rs. 5000.
If you invest early, you will accumulate a large amount of wealth over the long run. This is due to the power of compounding over time.
The time is in your hand. And the power of compounding will work automatically.
Let me begin with the options of how to start investing.
Start Investing in the Stock Market
(for How to Start Investing)
If you want to earn more returns in long term, the stock market is the first option. You can directly invest in the stock market and the process is now totally online. You can buy stocks online and sell stocks online. And the profit you can transfer directly to your bank account. You only require some knowledge about the stock market.
First, you need to open a Demat and trading account with a broker. Zerodha is India’s number #1 discount stockbroker. In Zerodha, the fees and commissions are very less compared to others.
Now you can open a Demat and trading account with Zerodha online. The link is given below.
After opening the account, you are eligible to invest in the stock market.
Now the second step is to pick stocks for long term investment. The question is how to select stocks for the long run?
I am here to help you. Do not worry.
Select quality stocks. If the stock quality is good, they will definitely provide good returns over the long run. The following major criteria may be used to pick quality stocks.
Market capitalization = Rs. 100 Cr
Debt to equity ratio = 0 to 1
Return on Equity = 12%
Return on capital employed = 12%
Current ratio = Greater than 1
The stocks should be dividend friendly.
That means the stock declares annual dividends.
You can also add other criteria as well.
Next, the intrinsic value of the stock should be higher than the current market price (CMP) of the stock. If so, you can start investing in stocks.
You can use the online stock intrinsic value calculator, which is given below, to calculate the fair value of the stock.
Stock intrinsic value calculator
Another bonus point is:
You will enjoy annual dividends of stocks if you hold long term, along with actual profits. Several stocks pay dividends every year at least one time. Some stocks pay final and interim dividends every year.
The stocks of NSE and BSE, like Bharat Petroleum Corporation Ltd. (BPCL), Oil India Ltd., REC Ltd., Coal India Ltd., Power Finance Corporation Ltd, and many others give a higher amount of dividend every year.
Start Investing in Mutual Funds
(for How to Start Investing)
Another good option of investing is to invest in mutual funds. You only choose a plan of a mutual fund, and the fund managers will do the rest.
Depending on your risk profile, you can choose equity funds, debt funds, or liquid funds.
If you plan to invest in mutual funds for the long term, choose a direct plan with a growth option. With a direct plan, you can earn up to 1% more return in mutual funds.
You can invest in individual AMCs. Register on their websites and choose the plan and invest. Here, the problem is you have to register each and every mutual fund AMCs.
If you want to invest in different mutual funds with a single account, use MFU Online.
Another good option to invest in mutual funds is to use Paytm Money. Here, you can also invest in different mutual funds as per your choice with a single account.
Start Investing in National Pension Scheme (NPS)
(for How to Start Investing)
You can also start investing in the National Pension Scheme (NPS). It is a government-sponsored pension scheme. First, it was launched in January 2004 only for government employees. However, it was available for all people in 2009.
The NPS scheme encourages people to invest in a pension plan at regular intervals up to 60 years of age.
After retirement, the subscriber (NPS account holder) can withdraw a specific percentage of the corpus. And the remaining corpus will be invested in a pension plan to get a monthly pension after retirement.
There are also tax benefits under Section 80C and Section 80CCD.
You can open an NPS account online as well as offline. To open an NPS account offline, you will have to find a Point of Presence (POP). The POP could be a bank also.
If you know the correct way on how to start investing in NPS, you can earn a lot of money at the time of retirement.
Generally, if you handle the NPS account correctly, you may earn a 12% to 13% return per annum.
You have the option to change the fund manager if the performance is not good. Again, you can invest in a combination of equity and debt funds.
That means complete flexibility.
Suppose you open an NPS account at the age of 20 years with an amount of Rs. 5000. And you are going to deposit Rs. 1000 every month. At the time of maturity, i.e., at the age of 60 years, your fund will grow to Rs. 1.2 crore at an annual interest rate of 12%.
What a large amount of wealth! Can you imagine?
This is only possible due to the power of compounding over time.
Therefore, start early investing in NPS.
Start Investing in Fixed Deposits
(for How to Start Investing)
This is a safe method where you can invest in. The investors who do not want to take any type of risk; this option is quite suitable for them.
As the name indicates, fixed deposits have a fixed tenure.
Just invest in fixed deposits and sleep. You will earn your interests. There is a saying that money earns money.
However, the returns are also normal and already declared. Also, no research is necessary. Just deposit the money and wait to mature.
You can do fixed deposits in different banks, post offices, or other financing companies. The interest rates given by fixed deposits vary from bank to bank or firm to firm. The interest rates on fixed deposits are as high as 7%.
Fixed deposits offer high returns on the amount invested than a regular saving account. Therefore, do not keep a large amount of money in regular saving accounts.
Regular saving account interest rate (SBI): 2.75%
One year fixed deposit (SBI): 4.9%
In fixed deposits, one thing you should remember that you cannot withdraw money before maturity without penalties.
Before invest in fixed deposits, be sure that how much interest rates they are going to give you for a given period.
Types of fixed deposits available:
Standard fixed deposits: Investing a specific amount with a financial institution and after the maturity receive the principal amount along with the interest.
Corporate fixed deposits: Held by companies other than banks and generally give higher returns.
Tax saving fixed deposits: To save tax. The investors can take the benefits of tax saving by investing in these fixed deposits. However, the lock-in period is five years, and the maximum deposit is limited to Rs. 1, 50, 000 per year.
Fixed deposits for senior citizens: Applicable for persons above 60 years and gives slightly higher interest rates. For example, SBI gives 0.5% higher interest rates for senior citizens.
Flexi fixed deposits: Here, the money moves between a regular saving account and a fixed deposit account. Thus, investors enjoy high-interest rates on their deposited money.
Cumulative fixed deposits: Here, the interest rate is compounded quarterly, semi-annually, or annually, but the interest amount is given only at the time of maturity.
Non-cumulative fixed deposits: The interest amount is paid monthly, quarterly, or half-yearly. It is suitable for persons who want regular income.
NRO Fixed deposits: It is for non-resident Indians. They can deposit their earnings generated from India.
Start Investing in Public Provident Funds (PPFs)
(for How to Start Investing)
Another safest method of how to start investing is investing in public provident funds (PPFs). It is a popular long-term investment scheme among investors. It is mandated by the government of India.
If you want to build a corpus in long term, start investing in PPFs. It gives stable returns.
You can open PPF accounts in different banks and post offices. The present interest rate in PPF accounts is 7.1%.
The PPF account has a lock-in period of 15 years. That means you cannot withdraw all funds before 15 years. However, in case of special circumstances, you can partially withdraw funds after the completion of 5 years.
You can also extend it by another 5 years after the lock-in period if you are interested.
In a year, you can invest a minimum of Rs. 500 and a maximum of Rs. 150, 000.
PPF account also provides loan benefits (only 25% or less of the amount) to investors. The loan is taken at any time from the start of 3rd year to the end of 6th year from the PPF account activation date. The maximum tenure of loans against PPF is 3 years.
You can get tax benefits of up to 1.5 Lakh in PPF accounts under section 80C of the Income Tax Act of 1961 of India. The total interest obtained from PPF investment is also exempted from tax. That means the total amount received from the PPF account upon maturity is tax-free.
It is recommended that you add some money to your PPF account on the 1st of every month. The added amount may be as small as Rs. 100.
if you invest Rs. 5000 per annum in a PPF account and allow growing, you will get Rs. 135,606 upon maturity at an interest rate of 7.1% per annum.
Investment Options Stay Away From
Stay away from services that charge high fees to invest. If you are a small investor and you are going to pay high fees, it very difficult for you to sustain. Most of the profits will be eaten by high fees and commissions.
So, before investing, be sure that how much fees you are going to pay for a given amount of profit.
Always be smart and invest your money in the right services through the right platforms.
Also, stay away from firms or services that guarantee you unacceptable returns like money doubles in 2 to 3 years or 5% to 10% profit in a month. These types of firms run scams.
Be careful! You may lose all your hard earning money if you invest in these types of scam firms.
Avoid tips while you invest in the stock market. It is my past experience that no tips work in the stock market. Improve your market knowledge and do your own research.
I do not believe in tips. I do my own research. If I am satisfied, I will invest whether it is the stock market, mutual funds, or any other investing options.
Do not invest by borrowing money from someone because you are planning to invest for the long term. Especially, do not invest in the stock market or high-risk funds by borrowing money. There is no guarantee that the market will give early returns.
At last, invest the money which you do not require in the near future. Because investment is a long term process. It yields good returns in a long run.
If you want to earn a large amount of money in the long term, it is better to start investing soon. The thing you should know is how to start investing.
Invest early and rich early.
If you want high returns in long term, the stock market is the first option. However, here the risk is also high. In the stock market, you will get unlimited and unexpected returns if carried out properly. For this, knowledge and stock selection are required.
If you want better returns in long term, it is time to invest in mutual funds. In Equity mutual funds, the returns are as high as 30% per year over the long run (especially in small-cap funds).
In debt mutual funds, returns of 10 to 12% per year are also possible in the long run.
If you want to retire rich with pensions, start Investing in National Pension Scheme.
If you want to take no risk and satisfied with the declared return, start Investing in fixed deposits and PPFs. Here, no research is required. Just deposit the money and wait to mature.
I think now you have an idea on how to start investing with a small amount like Rs. 5000.
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