How to invest money the right way?

A lot of people say making smart investments is an art. Frankly, it is not. Investing money requires logic and foresight. You need to be well aware of where you are investing your money, how much it can grow, and the risks involved. Higher the risks, the higher the returns. But that is not the only market you need to consider. Even people with years of experience in investing money find themselves unable to answer questions about all aspects of their investments. They may get exposed to certain vulnerabilities and lose some money. 

Now, you may ask - how do I invest correctly? While there is a lot of content online about financial literacy, knowing what is right can be confusing, and not everyone may be able to apply this knowledge practically.

Here are some important points to make investing money easy.

Know the difference between product and process
 

A financial product can be a service or an instrument that can help people carry out financial activities like saving, borrowing, or investing. Opting for a procedure to access financial services is a financial process. Understanding the difference between the two is important to managing your finances well. For example, a mutual fund or a fixed deposit is a product. On the other hand, opening a trading account with a broker is a process.

Understand the trail of your investment
 

Get to know exactly where your money is going to be used. How do I invest? Who will use it? What happens to it? Get a clear picture of every step involved in the process and decide where to invest based on that. Many investors think their designated broker or relationship manager will look into where the funds are being directed, so they don’t need to glance at it. Take a keen interest in these things to ensure your money grows safely. Eventually, you can even learn to manage your personal finances and investment plans independently.

Intermediaries and their roles
 

Financial intermediaries are entities that regulate or enable financial transactions between two parties. Different kinds of intermediaries, like banks, investment funds, insurance corporations, etc., play varied roles. For example, a bank may approach you to invest in a fixed deposit, selling an investment product to you. If the product, say stocks, belongs to a third party, the bank is acting as a distributor. Understanding who is managing your money and the features of different financial products can help you build an effective investment plan.

Ask questions
 

A lot of people shy away from asking questions because they feel underconfident about their financial knowledge. Even if you don’t understand finance in detail or require more help with your investments, do not hesitate to ask pertinent questions to help you reach your financial goals. These questions will help you decide whether the investment is worth your money or not. Any intermediary approaching you with an investment proposal is trained to explain the ins and outs of the same in layman’s terms until you are satisfied. But you are responsible for asking the right questions until you find the answers. Take some time and ask your investment manager to share their research with you so you can understand how to make informed choices.

Verify the credentials
 

Do your own research by verifying the credentials of the broker or the distributor. Look at their past performance and track record, or enquire about them through known references. Avoid brokers trying to sell you products indiscriminately without fully understanding your needs. Take your time to decide who you want to trust with your money, as there are a lot of sellers in the market, and you do not want to rush into an important decision about investing your money.

Money’s final destination
 

The final destination of your money has to match your needs and be of extremely good quality. For example, there are plenty of mutual funds operating in the market. Did you check the track record and past performance of the one you plan to buy? Did you check if their AMC is at par with their competitors in the market, or are they charging higher? If you are purchasing a bond, check if the issuer has a good credit standing in the market. If you are buying an insurance policy, scour the market, understand the available options, and then make a decision.

To sum it up
 

We hope the above points give you a good start to begin investing mindfully, and your investments grow from there. Understanding different aspects of investing money to earn higher returns without more risk than you can handle are essential. IDFC FIRST Bank offers a plethora of investment options to choose from for every age group and financial goal. Pick the right one from our website, or contact us today to discuss your portfolio.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.