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How to invest money

Learn how to choose your investment account, how to find the right broker and how to select stocks in India.

The sooner you begin investing, the sooner you can begin to grow your gains into a sizable nest egg. With the power of compound interest, investors in India can potentially turn an initial investment of INR170k with a monthly contribution of INR8.5k for 30 years into over INR59 million. So whether you’ve never even dabbled in investing or you’re just starting out, it’s time to get to work. Here’s how to invest money in India:

What you’ll find in this guide

Get your finances ready

You want to invest money you won’t need right away so it has time to grow. You’ll need to do a few things first.

Build your emergency fund. The common recommendation is three to six months of living expenses. You don’t need to keep this money in your checking account though. A money market fund at a brokerage or a high-yield savings account will work fine.

Pay off high-interest debt. If your credit cards hit you with high interest rates, you’ll save more by eliminating that debt than you’d gain with a lot of investments over the short term.

With those goals in mind, you can set up a brokerage account (if you don’t have one already) and start investing in India.

Decide what kind of investor you’ll be

Your strategy will likely change over time, but these are the most common types of investors in India:

Type of investorHow activeType of brokerLikely investmentRisk
Passive/retirementHands-offRobo-advisor or automated trading featuresETFs, blue-chip stocks, mutual fundsLow
ActiveMultiple trades monthlyCharting and research toolsStocks, ETFs, mutual funds, options, futuresMedium
Day traderMultiple trades dailyFast execution, advanced charting and research toolsBuying and shorting stocks, over-the-counter (OTC) stocks, ETFs, options, futuresMedium to high
CryptocurrencyVariesOffers multiple cryptocurrencies, potentially with low or no feesCryptocurrencies — Bitcoin, Ether, Litecoin, Dogecoin, Monero, Ripple, NEO, StellarHigh

Pick the right accounts

There are several types of investment accounts available in India. The most common account where you can buy and sell stocks and ETFs is known as an “Individual brokerage account.”

With an account like this, you can deposit as much as you want and withdraw whenever you want. You’ll pay taxes on profits but you can also write off taxes on your losses.

Choose the right broker

With so many brokers to choose from in India, you’ll likely find the perfect one for your financial situation. Here’s how to compare them:

  • Level of complexity. Beginners typically need a simple platform to place buy and sell orders and start investing. This can be done even through a mobile app. Because of their intuitive apps, platforms such as Zerodha and Upstox are often a good place to start. As you learn and grow, a broker such as Saxo Markets may be your next step because of its advanced charting and research features.
  • Activity. Active and passive investors have different needs. Active investors typically require advanced charting features and research and they execute the orders themselves. Passive traders often either buy and hold long-term or use automated trading systems like the ones from robo-advisors.
  • Fees. Some trading platforms don’t charge commission on stock and ETF purchases, and they don’t charge inactivity fees — which is great if you plan to hold your stocks long-term.

Compare trading options

Consider your options and needs when picking a broker.

Name Product Number of stocks CFDs Shares Available Markets Link
Saxo Bank
19,000+
Yes
Yes
US, CA, ES, NL, IE, UK, IT, DK, FI, SE, BG, PT, FR, CZ, CH, AT, PL, ZA, AU, HK, MY, HK-CH, SG, JP, MX, DE, NO, RU
Go to site
CFD service. Your capital is at risk.
More info
CFD Service. Your capital is at risk.
Trade 40,000+ financial instruments at market-leading prices with this powerful yet intuitive trading platform.
Zacks Trade
Access to global markets
No
Yes
US, CA, ES, NL, UK, IT, SE, BG, FR, CH, AT, AU, HK, SG, JP
Go to site
More info
CFD Service. Your capital is at risk.
Trade stocks, bonds, ETFs, options, and more on 90+ international exchanges. Offers customisable trading platforms with over 120 technical indicators for your charting needs.
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Compare up to 4 providers

Pick stocks and funds

An investment can be anything you think will increase in value over time, but for most people, it starts with stocks or exchange-traded funds (ETFs).

Individual stocks

In any given year, countless stocks outperform the market average. For example, in US markets, Tesla grew by nearly 700% just in 2020. No question, it’s fun to own the right hot stocks.

But in investing, winning big generally means bigger risks. So while many investors in India start with individual stocks, it’s best to keep stock-picking to a portion of your account dedicated to riskier investments. Keep the bulk of your funds in safer places, such as large blue-chip stocks.

ETFs

Most financial advisors would point novice investors in India to exchange-traded funds before buying a lot of individual stocks. That’s because ETFs give you a diversified portfolio across companies and across sectors, which is how you get that steady growth over the long term.

In general, ETFs track indexes, matching their performance at an average low cost of around 1% of invested funds each year. Over time, you may want to add other types of ETFs, such as sector funds, commodity funds and other classes as you become more comfortable targeting your investments and have more money to work with.

Bonds and bond funds

Buying bonds is the traditional hedge for a diversified portfolio focused on stocks. When stocks go down, bonds usually go up, though the returns are generally lower.

The old rule used to be to hold your age in bonds – at 30, 30% bonds, at 60, 60% bonds. But bond returns have been so much lower for so long that new rules have emerged. One says subtract your age from 110 and put the remainder in stocks. So at 30, you’d be 80% stocks, 20% bonds. American investing sage Warren Buffett has talked about a 90/10 mix for even retirees, with the bulk in a broad market index fund.

You can buy bond funds, actual bonds and junk bonds, and build ladders of bonds reaching maturity at different times – in short, like stocks, you can get really into bonds.

Real estate, gold and other securities

Stocks and bonds are readily accessible, but almost anything you expect to rise in value can be part of your investment portfolio.

Real estate investing is one way to go. You can buy your house or rental property (some would question counting your home as an investment since you have to have a place to live, but that is a side issue.) You can try an ETF, a real estate investment trust (REIT) or several specialized investment brokers that let you join a deal with very low buy-in.

Investing in metals, and particularly investing in gold, has always been viewed as a safe haven when the market crashes — especially in India. Most commodities in fact can be invested in via the futures markets, or through ETFs, though that might not be as satisfying as dropping a gold coin in your pocket. (Storing commodities on your own can be a hardship, though.)

Foreign exchange investing, as well as cryptocurrencies, have grown in popularity in recent years. In forex, you’re basically betting that one country’s currency will rise and fall against another. In crypto, you’re picking one of several digital currencies because you think people will pay more for it down the road. Unlike a stock that is backed by a real company or a currency backed by a government, crypto is only worth what someone will pay you for it. So the risks are higher, but the rewards in recent years have been huge.

Collectibles: Almost anything from collectible cars to art to antiques can be acquired and tucked away as investments. Some are literally worth more than their weight in gold.

The hitch is that for the biggest gains, you have to know the field well enough to figure out what will sell a decade or more down the road. Or have the capital to buy classics when they’re already classics.

That’s at least as challenging as picking individual stocks.

Investing myths

Now that you know how to invest money in India, let’s take a look at some investing myths that are common among investors in India.

MythReality
You need a lot of money to startStart with just a bit of money each month
The stock market is too riskyWhile more risks can mean bigger returns and losses, the broad market goes up reliably over time
You have to pick stocks to succeedThe market as a whole outperforms a lot of expert stock pickers
You need to actively tradeBuy and hold is one of the most profitable investment strategies
You need to do a lot of researchSafely pick large and popular companies and hold them long-term
You are too old to start investingInvest at any age, but to get the same results, you’ll need to invest more money if you start at a later age

Pros and cons

Pros

With investing, the idea is to use your money to make more money. By creating and preserving your wealth, you can reap the rewards of:

  • Return on investment. Many investments increase in value over time. Investments aren’t always guaranteed, but profit projections can help you decide what to invest in and how much to invest.
  • Dividends. If you purchase stocks, funds or cash-value life insurance, you own shares in that company and may receive a percentage of its profits — which you can either cash in or reinvest. These dividends are distributed to shareholders on a set schedule. Stocks and funds typically pay quarterly dividends, while mutually owned life insurance companies tend to pay annual dividends, sometimes called a return of excess premium.
  • Compounded interest. Many investments in India give you the opportunity to earn compound interest, which is essentially interest on your earnings. The longer you hold a stock, the higher its value — and the more interest you’ll earn.
  • Voice in how a company operates. When you own shares in a company or corporation, you get to vote or have a say in how it’s run.

Cons

Risks investors face include:

  • Volatility. The value of an investment can fluctuate, sometimes wildly, due to internal factors like faulty products or external events they have no control over.
  • Losses. The value of investments can decrease for many reasons. Companies can underperform, demand for products or services can dry up and the stock market can crash. The result: you lose money.

When assessing risk, consider your age as a key factor. Younger investors in India can take more risks because they have time to make up for losses. Those nearing their retirement are usually told to dial back risk.

Bottom line

When wondering how to invest money in India, the key to getting started is centered on having a plan and understanding the assets you’re investing in. If you can handle the volatility of investing and minimize the risks, there exists an opportunity to grow your money. Evaluate your options, learn what fits you best and compare the products and services that will help you achieve your goals, starting with online trading platforms.

Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

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