So next comes how much to invest & where which will depend on risk appetite of each individual.
Before that let’s cover some risks by “insurance”. Buy your term insurance & buy it online , some companies offer premium differential on that . Most of the employers cover your medical insurance, but in case it is not or the coverage amount is small, take medical insurance.
Once the protection is in place, then understand different instruments where we can invest :
- Fixed deposit
- Recurring Deposit
- Mutual fund
- Provident Fund
- Real estate
The differentiating factor is return vis a vis the risk . And when you are calculating return you need to look at it as return post tax.
- Fixed deposit, Recurring deposit will give you fixed returns ie the rate of interest. But as interest is taxable you have to keep the after tax return into consideration depending on your tax bracket .
- Provident funds returns are tax free and amount you invest also gives you benefit under sec-80 C. But this amount would be available to you post 15 years ( partial after 6 years).
- You can either invest directly in stock or indirectly through a mutual fund. Here returns are not guaranteed and you can’t rule out negative return or risk of loosing the principal. A stock you have chosen may give you excellent returns as well.
- Since we have just begun on this journey on investing so we can use the diversification benefit given by mutual funds instead of investing in a single stock.
- If you do little homework and keep it for a long term horizon (say 5 years plus), then the returns on mutual funds are relatively much higher.
- Real estate will take up later along with REITS.
- NPS combines the feature of mutual fund and fixed return instrument along with tax benefit on amount invested; but again amount would be available post you complete 60 years.