As a first time investor you need to be extra careful before you decide to invest in a certain option. This is important to give a sound start so that you will be able to build create a strong foundation.
It’s absolutely possible. However, the market is complex with complex environment. Therefore, in this rapidly changing environment, you will require a prudent thought process which will help you achieve your goals.
Fixed income investment options are perfect investment options for the first time investors.
Where should a first time investor invest | The various advantages of fixed income investment options are
- They have a pre determined interest rate which is payable to the investors after a specified period
- Decent returns of around 8-9% per annum
- Investors clearly know when they’ll receive the amount and how much? In this way an investor can easily decide a certain scheme which will help to meet his goals in a period of time.
Where should a first time investor invest | Benefit of compounding
Fixed income instrument ensures a steady stream of earning. When you start with your investment journey with fixed income instruments then it might look to give moderate earnings at the start.
However, after some time you’ll see the magic of compounding and how it works in favour of you.
For example, an investment of say Rs 1 lakh in a fixed income instrument gives you returns of 8%. This means you’ll earn Rs 8,000 in the 1st year. However, the earnings will increase to Rs 11,000 when you reach the 5th year followed by Rs 16,000 in the 10th year.
And in the next 10 years time, your investment vehicle will earn nearly Rs 34,000 yearly at the same 8% rate of interest!
This huge rise in your absolute earnings over a phase of time is possible by simple discipline. You receive the benefit of compounding giving you significant benefits in the later years.
You can invest in different types of fixed income instruments like fixed deposits, bonds and debentures and mutual funds.
Where should a first time investor invest | Fixed income instruments | Risk factors
There are certain risk elements which you need to take care of like Credit risk and Reinvestment risk factors.
Where should a first time investor invest | Conclusion
Hence, it’s advisable for the first time investors looking for steady income and significant corpus after a period of time to invest in fixed income instruments. Also they give a strong foundation to your portfolio and time frame to understand the market better. After a certain period of time when you gain enough knowledge, you can invest in equities and other options thus strengthening your portfolio.