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Where should a first-time investor invest?

Dhirendra Kumar explains the inflation-beating power of equity investments and suggests a plan for a first-time investor

I work as a tailor and I am able to save Rs 1000-2000 monthly. Where should I invest these savings?
- Shantanu

You must choose to invest these savings monthly in mutual funds, specifically, in an aggressive hybrid fund. You may require this amount in the near term and you will be able to redeem it within two days. However, try and invest in it with an outlook of five years.

Usually, investors feel that investing in a fund is equivalent to investing in shares, which they think is synonymous with taking risks. But no one realises that the risk is there only if you invest with a short-time horizon because, over short time frames, the stock market goes through sharp ups and downs time and again, thereby scaring investors away. But over longer time frames, the potential of the stock markets to provide inflation-beating returns is far predictable.

For a first-time investor, an aggressive fund with 65:35 equity-to-debt allocation works well, as the in-built debt portion acts as a cushion. So, when the market falls, the fund will neither crumble much nor scare you out of the market, which will ultimately help you build confidence in the market.