Investing your money is all about creating wealth and eventually, over a long period, reaching a point where you can supplement your income with it. While there are many ways to do this, you should have the basics clear.
It can also be overwhelming when you are about to begin this journey. To help you get started, or if you are already investing, to help you course-correct, there are three myths which need to be dispelled.
1. You need a large amount, to begin with
This may have been the case a few decades ago when real estate was the go-to investment asset, however, with the growth of financial securities like stocks, bonds and mutual funds, you can begin with much smaller amounts. A feature that mutual funds offer, systematic investment plans (SIPs), allows you to invest as little as Rs 500 a month and you can start that with an initial investment of Rs 5000.
That’s hardly a large amount and you get access to assets like equity – both domestic and international, fixed income and even gold.
2. You need a broking account
If you want to invest in equity stocks, you do need a broking account and a Demat account, however, this is not required to start investing in equity mutual funds with the minimum amount mentioned above. Mutual funds, in turn, invest in a portfolio made up of stocks and/or bonds. This helps you get exposure to the required assets without having to go through a broker or take on the risk of short-term volatility in equity assets or the liquidity of bonds.
3. Investing is free
Thanks to the practically free broking accounts and the ‘no charge’ fixed deposits, one starts to feel that all investing is free. However, that’s not the case. In fact, while you may be paying very little as an outright cost for a broking account, taking on the volatility risk of investing directly in equity is your true cost. Even in fixed deposits, the cost is the low return you settle for which doesn’t cover inflation (at present) and ends up being a negative real return investment.
The cost of investing in mutual funds is an annual fee and you pay that for getting professional fund managers to manage your money and in case of the regular plan also for your advisor. The fee ranges from an average 2.5% a year for equity funds to 1% for fixed income schemes and 0.5% for money market schemes. Costs reflect the benefit of the product or the value that the product adds to your investment portfolio. An investment that you think is free, may end up carrying a lot more risk. Hence, it's always better to research costs and then make your investment choices. Nothing comes free.
Carrying myths about investing can lead to mistakes in choices of financial products. Let go of these and explore the options available; starting with small sums, no broking account and armed with transparency in cost, there is no reason now for you to shy away from investing.