So you’ve earned your first salary, went on a saving spree for a few months and now you have ₹50,000 resting in your bank account. You’re perhaps wondering about the best way to put them to work. Yes, we mean the best way to INVEST YOUR FIRST ₹50,000!

It is always recommended to start thinking about investments early in your career – in fact, as soon as you start earning. You’re smart and you’ve already made that decision – INVEST!

It must be an exciting feeling because it is probably your first investment. But its also scary, stressful, and overwhelming, because for one you don’t know where to start and second, and more importantly, you don’t want to make a wrong decision and lose your hard-earned cash.

We know that feeling, and that’s why we decided to help you invest your first ₹50,000 that will not only start your journey in the world of investments but also guide you through all the nuisances of investing.

Before we dive in the topic of “where”, let us first understand the “why” side of investing.

Why do we really need to invest?

The simple answer is, primarily, to:

• plan for the future. You never know what may happen in the future, so preparing now is important
• to allow your money to grow over time
• make sure inflation is not eroding the value of your money, the value of ₹1,000 today is not going to be the same 10 years from now. Hence saving is not enough, and you need to invest
• retire one day and ensure you have sufficient money to take care of your expenses and enjoy life once you’ve stopped earning

A well-designed financial investment plan not only provides the right channel for your hard-earned money but also creates more funds in the long run. Investing helps you accumulate funds over a period that can be used later in life to meet contingencies, meet your financial goals and ensure you’re financially worry-free in life. As years pass and responsibilities increase, savings and investments in the right proportion become difficult. Hence, the earlier you start, the better it is for you.

So how would you invest your first ₹50,000?

Put together an emergency fund

The first step for you is to save for the rainy day. Life is uncertain, today we have a good job or the business is running smoothly. But what if it isn’t? For situations like these, the first rule of investing is to put together an emergency fund in place, which should be roughly around 3-6months of your salary (or monthly expenses). So, in case, you lose your job, you have enough cash stashed for you to survive 6-months without worrying, and you can figure out what you need to do to get back in the business.

It’s very logical investment advice, that most people don’t pay heed to. As a result, when they do get in a situation like this, they suffer, get stressed and make big mistakes in their lives. Because they don’t have money to sustain and lose their “everything”.

You don’t want to be in a situation like this, so start with putting together an “Emergency Fund”. Contribute a part of your saving every month to it, until the fund has 6 months of your salary. Put this money in a high-yielding savings account or a fixed deposit that is easily accessible. Liquidity is very important in the emergency fund so that when you actually need it, you have immediate access to it.

Start clearing out your debt

You have ₹50,000 in cash to invest, earn returns on and start getting ahead. But you can’t get too far ahead if you have debt in your head, especially if the interest you are paying is higher than the return you will earn from your investments.

The next step for you should be to start paying off your high-interest debt. Maybe not all at once, but gradually and fast. This will ensure that the interest charges you are paying don’t eat out on the returns your money makes.

How to go about it? Review your current debt – identify the ones that have the highest interest rates, and start paying them off first. You will also need to look up other costs like prepayment charges.

Put up a diversified investment plan in place

Now that you have secured cash reserve via your emergency fund and your debt is managed {and declining with payoffs}, the next step is to figure out what are you investing for?

Investing usually doesn’t give you the best outcome if you do not have an idea what is the investment being made for. Therefore, you need to identify your (investment) goals, and then prioritize these goals or else there is no point of investing. Because without this you are likely to make investing mistakes and end up losing the money or not having it when you need it the most.

Using a financial planner is a good idea at this stage. The planner will help you identify your investment goals in life, put a number to each of these goals, and suggest an appropriate mix of equity, debt, gold and other investment classes based on your goals and life situation.

Here is a brief of why you should invest in each of these asset classes:

– Equities: You are young and have a long road ahead in your life. For the very same reason, a high allocation of your investment towards equities makes total sense at this stage of your life. When you are young, you can afford to take higher risks because you don’t have immediate responsibilities, retirement is too far ahead, and you have the stomach to take in the risk. Remember, high-risk means high return.

Planning your equity investment properly will help you mitigate this risk and ensure you get the maximum returns.

Since you are new, we recommend you start investing through Equity mutual funds, keeping a good mix of mid and small-cap funds and diversified funds. You can also start learning about investing in stock markets, researching stocks and keeping an eye on which companies are doing well, and are expected to be leading their respective sectors. Discuss this with the experts in your network and your Stock broker (ideally their research team) and dig in deeper from their inputs. This will be a good starting point for you to learn about companies, identify tomorrow’s winners and add them to your stock portfolio.

• Debt: Investing in debt helps you protect your portfolio from volatility and the downside and offer stable returns. Debt products are characterized by two things – the safety of principal and fixed and regular income. The safety, certainty and stability of debt investment provide a cushion for your portfolio from adverse market reactions. It is the bedrock of any portfolio and is an integral part of it. As an individual investor, the most popular debt investments for you are fixed deposits, monthly income scheme by Indian Postal Service, public provident funds (PPFs), debt mutual funds, and national saving certificate (NSC)
• Gold: Everyone loves gold, And why not? It is a very important part of any diversified investment portfolio because not only it serves as a hedge against inflation but also acts as a diversifier and a way to mitigate losses in times of market stress. While gold prices can be volatile in the short term, it has always delivered generated returns in the long term. We are sure your grandmother will also approve of this investment!

Investing in physical gold may not be a good idea due to the concern of safety and purity. The gold exchange-traded fund (ETF) is a great way to invest in gold that offers full safety and allows you to invest even low sums.

The Bottom Line

Switching on an investment portfolio is a major step and while ₹50,000 may not seem like a lot of money, these days, but it’s plenty to kick off your investment journey. That first step is to get started, because the secret to building wealth, in the long run, is to start early!

You can reach out to a financial planner to help you with your financial plan and investments, by emailing us at contactus@arihantcapital.com