The world somehow managed to survive the haywire caused by the first wave of COVID 19. However, it wasn’t long enough when the second wave hit the nation and shook the economy in the most deprecating way possible. It won’t be wrong to say that people are struggling with the volatile changes in ongoing financial situations in the market. Then there is inflation coming in the way of home loans, child education, and other responsibilities.

As Warren Buffet put it, “Never depend on a single income. Invest to create a second source.” All in all, this pandemic has made us realize that life is unpredictable. We cannot rely on private jobs or uncertain businesses in a market that strives during a global shutdown. Aside from the usual expenses, what we need is an unwavering and robust source of income or just the savings we can use during such phases.

It’s important to build a safety net of savings, investment, and cash in hand for our present and future. This is the only efficient way for your family’s financial well-being. That safety net entails passive income. A passive income can be described as the earning that doesn’t consume the ordinary 9-to-5 time duration of our lives. While there may be different ways of earning money through numerous means, investing in the stock market with proper planning is also a way to go.

There are different financial vehicles through which we can create wealth from the stock market. Many investors invest in the stock market instruments for a short-term period to a long-term period depending on their goals. Studies have shown stereotypical investment options like bank FDs, and RDs. But these sources give only 5 to 7 % of interest. On the flip side, investing in the stock market has given nearly 15% of annual returns in the past decade. There are different modes of investment in the stock market like Mutual Fund, IPOs, Bonds, equity, debentures, etc.

Investment in mutual fund 

Mutual Fund is the financial instrument that pools the money from people at large and diversifies the investments in the basket of stocks, bonds. Each investor owns a unit of fund which represents a potion holding of the scheme. These funds are managed by the qualified fund manager of asset management companies. Investment in mutual funds is one of the best investments as it diversifies the risk.

Mutual funds have a basket of different stocks in which it pools. Thus, the risk is much lower than owning an individual stock. Another benefit of investing in a mutual fund is starting with a small investment as individual stock need a large amount to buy each stock on the other side in mutual fund we can start investing Rs 500 per month.

The early you start early you see the magic of investing. It is very important to diversify and allocate your income as per the hybrid model. Hybrid means a mix of equity and debt instruments.

Allocation as per age 

In your 20s 

The early you start the early you get benefits. You must know that this is the time when you can contribute the majority of your income to a lucrative investment. Evidently, an investment in this decade has the greatest possible growth. 

Preferably 70 to 80 % of your Investment should be in direct equity and pure large-cap funds as the risk appetite and growth changes are more in this period.

In your 30s 

This is the time when we plan our life in terms of asset building and starting a family so we may not be able to contribute to investment the way we can contribute in the 20s 

Preferably it has 60: 40 ratios i.e. mean 60 % in equity and 40 % in debt (bonds, debentures).

In your 40s to 50s

This is a time you need to buckle up down as you are in mid of your career, majorly you are thinking for your kid’s future, paying off loans, and close to your retirement. 

 Preferably its 50 to 50 % of ratio i.e. 50 % in equity and 50 % debt

In your 60s and above 60s 

This is a time you are getting close to retirement or retired. This is the time to switch to slow and moderate options. At this period, it’s time to focus on income including dividends, bond interest, etc. So invest in large-cap and blue ship companies  

Preferably, stocks should be 30 % to 50 % and bonds should be 50 % to 70%.

There are so many advantages in investing in mutual funds like an investment that can be made in lumpsum or SIP, diversification of stock (large-cap, mid-cap, and small-cap), redeemable, close and open-ended schemes, professional assistance, regulated and approved by governed body SEBI. Undeniably, it’s a new-age investment vehicle.

Investing in stocks

It gives you a passive income in the form of capital appreciation and payment at regular intervals from the company in the form of dividends. Dividends are paid per share the more shares you have the higher amount you earn. Dividends provide a low risk for the budding investors to start with and benefit a lot in later in investing years. 

Dividends are the best way to have a second income as earning dividend have no active participation of an investor, Investor enjoys earning as interest which is higher than FDs in long run depending on how long and how much quantity you own.

Let’s understand this with an example. You purchase a property and you rent it out which is passive income for you. On the other hand, you purchase shares of the company and you earn dividends on an annual basis as a final or interim dividend by a company. In both cases, you have done one time of effort and enjoyed a fruit at a later stage.

Investment through Initial Public Offers

IPOs help you to earn profit in a very short period. It has the potential to bring in big returns. It has price transparency and information is more accessible so that you can invest in it consciously. It is an attractive option to buy at low and sell at a higher price.

Investment in Bonds 

A bond is a fixed-income investment, which provides a stable return. Bond is useful to the time for early retirement and one who is new to the market. A bond is a good option to use to reduce tax burdens.

Stock market Investments helped many people to earn an additional income with little time and effort. It helps you to improve finances and also helps you to build your financial freedom for the future which supports your desired life objective. However, Stock market investment is not about getting quickly rich easily overnight, they provide money over time, not in one night.

It depends on how and with whose help you are investing. Our advice is to start investing early but it said it’s never too late to start to grow and glow in life. Seek out our financial professional help who can give a road map for your financial journey for your better present and future.

Cheers to your Financial Journey!

Trading Gurukul.