Everyone understands the need to invest. But making investments is not a simple process and one needs to keep certain points in mind. Here are some basic pointers for making investments.

1. Investment is not only about earning incomes out of one’s savings. Since savings come out of current income, it means curtailing on present consumption to make allowances for the future. It is therefore important to balance one’s regular budget between present consumption and investments.
2. Investment is essentially about taking risks. Safe parking of savings in bank accounts or fixed deposits is not actually investments. The money parked in the bank is invested by the banks who give a certain amount as returns. Thus, even if such deposits have a guarantee on returns, they are used to take a risk nonetheless.
3. Higher return is always associated with higher risks, as interest earnings are nothing but risk premiums. Individual investors have to strike a very fine balance between how much returns an Investment option offers, and the risk that the return might not materialize.
4. One safe hedge against risk is to diversify one’s Investment. Instruments like mutual funds provide easy diversification where the service provider takes the burden of risk diversification. Thus even though return rates may vary yearly; the risk of total loss is reduced.
5. The more one shifts from being risk-averse to being a direct risk taker, the higher the rate of returns one enjoys. Instead of going through the services of a mutual fund, if individuals were to directly invest in the equity or stock market, the returns earned over the same projects are higher. However, to do that, the investors need to actively engage in the functioning of these markets. That requires time, knowledge, decision making, and prompt action.
6. Mastering Investment directly in stock markets requires a lot of experience. But the first thing one needs to learn is to engage in the process of taking Investment risks. Today, schemes like P2P Lending offer a stepping stone to learning this process. With the very small amount of money, one can register in such activities, scout through potential Investment options, make risk assessments and spread one’s Investment across Personal Loan seekers. This is a good learning process for learning to make investments, which can then be carried forward to bigger fields as one gains confidence.