Grow Money 'Cha Ching'

3 Best Investment Options For Beginners

When you start your career, investment is probably the last thing on your mind. But, it is essential to start at an early age. The power of compounding kicks in at an early stage, and you’ll have much to gain when you start investing early. Some of the best investment options for beginners are enlisted here which will initially get you started on the road to investing.

Top 3 best investment options for beginners:

Investment Option 1: Fixed Deposits

When you saw the word, you might have uttered “Yuck!” but just think of where you are today from a financial standpoint. Our parents were major users of fixed deposits. They had the grit to save in spite of low salaries in those times. You can choose Fixed Deposits as a sure shot way of making money work for you. Of course, today, the interest rates for this option is less. But, this will help you get started and help you build a habit of saving.

Fixed deposits help you save a lump sum amount and earn interest on it. It works usually on simple interest, meaning at the end of 1 year, you will get your initially deposited money along with the interest. If you re-invest the amount along with the interest money and extend the fixed deposit, you’re essentially compounding it. This is one of the best investment options for beginners when starting out and will help in slowly building a habit of saving.

Investment Option 2: Recurring Deposit

In my opinion, this is one of the best investment options for beginners. This savings instrument (any method of saving is usually called an instrument – Refer here) helps you to automate your savings on a monthly basis. The best part of saving using recurring deposits is that your minimum amount is as low as Rs.10 (depends on the bank your opening the account). When you open a RD (short for recurring deposit) account in a bank, the bank will automate the process of allocating money to the RD account by withdrawing the amount from your savings or salary account.

Recurring Deposit helps in cultivating the habit of saving money

Recurring deposit becomes important when you’re trying to cultivate a habit as this automation takes care of investing for you on your behalf regularly without fail. Initially, when you start investing, you will find that your will powers are tested at every instance.

“Should I go for that coffee at Starbucks or save it in an RD? What the heck, let me splurge” is an usual thought.

To get out of this thought, you need a way of managing your money that is outsourced to someone else initially so that you don’t lose your control. Automation by the bank does that for you. In essence, the bank saves money from your savings or salary account and helps you accumulate a considerable sum at the end of a year. The bank withdraws the money from your account on the date that you start the RD on.

For example, if you open an RD account on the 5th of January for Rs.500, then, for the month of February, the bank will automatically debit Rs.500 from your savings bank to your RD account. This will similarly happen every month for the duration of the RD account. This is one of the reasons, I advise you to start the RD account when the month starts. I would suggest a date between 5th and 10th of every month, if you’re getting your salary on the 1st of every month. So, even if you’re tempted to spend, the money is already deducted and you will have to make do with whatever is remaining. Start with a small amount. I suggest you start with Rs.500 on a monthly basis.┬áTry this and you’ll thank me later!

Investment Option 3: Public Provident Fund (PPF)

The reason I suggest this instrument is because it is TAX FREE! Yes. This is again, one of the best investment options for beginners while also helping in saving tax. PPF is more like a savings account that earns interest. The minimum contribution required is Rs.500 / year. The reason, this is an important instrument in saving money is because almost all other investment options attract income tax. If you have just started you career and do not have a salary of more than Rs. 2,50,000 per year, then you don’t have to worry about tax. You are eligible to be taxed when your salary crosses this limit. The amount you invest in PPF is deductable under section 80C.

Any government bank like SBI can help you in opening a PPF account. IMHO, SBI is good because it allows you to manage it using internet banking. If you open for PPF account with post office, you’ll have to physically go to the post office to deposit the amount. There is one hiccup here. There is a lock-in period of 15 years before you can withdraw the amount with the interest. You can however withdraw partially after the sixth year. You can invest in this for the long term.

As a start, IMHO, go with the recurring deposit as it will help you cultivate the habit of saving. Set a goal, start saving and live life in peace.