Money lying idle in a savings bank account give nominal returns. On the other hand, the same money if invested in a scheme can reap huge benefits. As a rule, any investor should attest to three fundamental rules of investing: starting early, investing regularly and wisely, and staying for the long haul.
The biggest benefit of starting early is in the power of compounding.
Compounding returns, especially in growth assets like equity, can help investors in creating wealth provided they give it enough time.
"Once investors start their investment journey, they should stay invested because the power of compounding works best over a long period," suggests Atul Shinghal, founder and chief executive officer, Scripbox.
Keeping emotions at bay, and staying disciplined while investing are also equally important.
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Arshad Fahoum, chief product officer of Market Pulse suggests investors think in terms of years and decades, rather than days and weeks while investing. It's important for them to mentally train themselves before investing and then making wise asset choices.
Generally, people have ready excuses for not investing like "I don’t have enough. I’m too busy. I'm too tired. I'm too scared to take the plunge. I need to be a pro at reading financial statements first."
Fahoum warns against these apprehensions and instead suggests individuals to simply focus on their common sense.
"It's okay to start small but commit to that small amount every month. Once there is skin in the game, learning will automatically accelerate and novice investors can grow into a confident, profitable investor," he opines.
Another cardinal rule is to look at investments from a long-term perspective, rather than chasing short-term returns or expecting quick results.
According to Shinghal, investment decisions should be driven by an understanding of the finances which would include recognition of goals and knowledge about the various offerings.
"Once this is in place, investors can accurately decipher their risk appetite and decide how much they want to invest and over what timeframes. Suitable asset allocation and diversification, in order to reach the financial goals, should have a place in the financial planning,” he explains.
As a rule, investments should be diversified and one should avoid placing all the eggs in one basket.
There are various instruments that can be used today, like debt mutual funds, equity mutual funds, ETFs, etc. Some of these instruments, such as
systematic investment/transfer plans are designed to let investors benefit from cost averaging.
These plans transfer a fixed amount into equity on a monthly basis thereby mitigating risks. Creating a portfolio with a judicious mix of investments will help beat inflation and make real returns.
For equity investments, Fahoum says that buying a stock is like buying a piece of the business. Hence, investors should think like a business owner such as 'what they own’ and ‘why they own’ it,”.
To start with, individuals can use a simple checklist to gauge the choice.
"Is this a star company in its sector, with a good track record of products, services, management, and revenues? Is it profitable and growing year on year? Who are its competitors? After the basic groundwork, the rest is patience and discipline," he illustrates.
Besides, investing through a wealth management firm is worth considering, if the intent is to create wealth. They will ensure the right asset allocation, as Shinghal says, for the goals, diversification of investments, and periodic reviews for the wealth creation journey.
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
