Gone are the days when investing meant accumulating savings in fixed deposits or saving up to buy a house. Access to market linked financial products like mutual funds has opened up a myriad of investment options for the first-time investor. 

With technology advancements, investing a portion of your first salary in a mutual fund scheme is only a matter of minutes. However, where should you invest your first salary? Is it a must to begin with an equity fund?

Set your goals

To answer the questions above first do a small exercise and list out your goals. You may not be armed with defined goals, however, visualise and write down some important milestones which require monetary aid. 

For example, think about whether you want to fund your own marriage rather than have your parents spend on it. How soon would you like to own a car, are you ok to take a loan for it? How much down payment do you need? Is owning a house a goal you visualise 5-10 years in future? Some of you may want to study further and funding the education is a financial goal. Some proactive savers can even begin investing for retirement and of course there is tax saving to consider. 

Whatever your goal may be, you should write it down. While most long-term goals or goals which need to be accomplished in 5 years or later can be achieved with equity funds, for goals which need to be achieved in a year or two you should consider good quality debt funds like liquid funds or low duration debt funds. 

Market linked investments like mutual funds have a daily price which can move up or down. Volatility is part of the experience and if you have managed to get the quality of the scheme right, then volatility is most likely a factor of market movement rather than your long-term experience. 

How comfortable are you with risk?

This is slightly harder to do. Often understanding risk is also about experiencing it, which, comes with time. The biggest risk in investing is to see your original capital declining. In equity investments this is a possibility in the first few years. In all likelihood in the first three years of your equity investment you will see your capital become negative at least once. 

Market linked investments like mutual funds have a daily price which can move up or down. Volatility is part of the experience and if you have managed to get the quality of the scheme right, then volatility is most likely a factor of market movement rather than your long-term experience. 

Nevertheless, if you are not sure about how much volatility you are comfortable with, start your investment journey with a higher proportion of debt funds like short term income funds or even liquid funds. These are stable return funds and will help you accumulate your savings and earn more than what you can by if you were to rely solely on your savings account. 

You needn’t always begin your investment journey with equity, but it is important to start early and stay the course. How much you invest in debt or equity will finally depend on the goals you have identified and your understanding of risk.