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Over the last few columns, we have been preparing ourselves to start investing. We have checked the boxes regarding documentation and other procedural work. Today, we will answer some of the common questions investing neophytes have.
How long should I invest?
Investing is really for the long haul. When you plant a sapling, you do not expect it to immediately grow and bear fruits. Likewise, approach the game of investing with a long-term mindset. Long-term here is at least five years. What to do if you need the money suddenly? Here is what you do. Set aside a portion of your allowance or stipend or salary that you will not touch for at least five years. If this is a very small amount of money, so be it. That “time” in the market is super important. Over time, from such tiny acorns, mighty oak trees of wealth will grow and reward you financially. Patience is the name of the game here.
What should I buy?
There are so many stocks. What should I buy? Basically, you want to fill your financial shopping cart with good investments. When you go to a super market or even a Levis showroom, the choices are confusing and at times overwhelming. The same is the case with investment products. Here is how to go about making solid investment decisions, as you learn the craft of investing. You should not try to do a Virendar Sehwag, without learning the unspoken rules of the games. You will do a Rahul Dravid by playing strokes that give you decent runs while minimising the risk. As you gain experience in investing, you can morph into a Sehwag or Kohli or an AB de Villiers. But when you start out, it is important to be a steady player.
Index funds are the Rahul Dravids of the investing world. These are just one type of mutual funds. In case you have forgotten what a mutual fund is, read up on my previous columns in this series. Index funds invest in large, established companies in the stock market. The fund is diversified across a large number of stocks, and more importantly, the fee paid to the company is really low. Why is this important? It is because the fee comes out of your pocket. You want to minimise this. The management fee is deducted every year and is not a one-time expense. Index funds make sure that you are not charged high fees.
Where from to buy this Index fund? I don’t know any broker or an agent.
As a motivated reader of this column, you do not need a broker or an agent. Go to the website of the top mutual funds in the country (check out the top three or four fund houses) and search for “index fund” AND “Direct Plan”. A “Direct Plan” lets you invest directly without the help of any intermediary like an agent or a broker. Once again, by going direct, you avoid paying commission to the broker/agent.
In the next column, we will explore how to move further in our investing journey. Till then, happy investing.
The writer is an alumnus of IIM Bangalore and co-founder, Money Wizards. chari.venkatesh@gmail.com