How you can invest even with small amount of capital

We all crave for financial independence. Working in myriad jobs and depositing the accumulated savings in the bank at the end of each month is a common habit among most people. However, in the age of rising expenses, many people complain that they are unable to save enough, let alone invest adequately. Also, low-income levels at the beginning of one's career mean that the younger generation does not hinge itself to the idea of investing towards a secure future.

Many people are of the misconception that steady investments are possible only with large deposits at one's disposal. However, this is not true. Making investments must be imbibed as a habit, irrespective of how meager your savings may amount to be. To ensure the first step to your investment journey even with very little capital necessitates you to take the following steps:

Have a financial plan in mind

Know what you wish to save for. Having a financial goal in place is important before you decide on the nature and extent of investments you wish to make. Besides, you must be aware of your risk profile and proclivity to bear losses. Depending on your risk propensity and the amount you wish to accumulate within a certain period, you must plan your financial investments accordingly. Raj Khosla, founder and managing director, MyMoneyMantra, says, "Drafting a financial plan helps you save for your short, medium and long-term life goals. As your plan is aligned with your objectives, income, time horizon, and risk appetite, it helps you crystallize your financial future and build a backup fund for essential needs such as kid's education, retirement, and emergencies."

Evaluate your insurance needs

Many millennials do not value insurance. So much so that while chalking their investment plans, they tend to leave out the insurance aspect misconstruing it to be an unnecessary expense. Naval Goel, CEO & Founder, PolicyX.com says, "Including insurance in your financial plan is highly beneficial. Just like term insurance provides financial assistance to the family after your death, health insurance prevents your money from getting submerge into medical emergencies. Life insurance will create a reserve of savings, and last but not the least, auto insurance will protect you and your vehicle from unwanted road emergencies, etc."

Choose a term insurance plan

Sudden death of a family's breadwinner can unexpected and consequently unanticipated. Loss of income stemming from unforeseen death can wreak havoc on the financial status of a family. Choosing an adequate term insurance cover according to your contingent liabilities and future expenses help. Vineet Patawari, co-founder, stock analytic app StockEdge and financial market learning portal Elearnmarkets.com, says, "Term Insurance is an essential component of your finance management. It covers the risk of stop in regular income because of death or disability. We should buy term insurance which is the cheapest form of insurance and invest the rest in other instruments like direct equity or mutual funds."

Invest regularly

Investing in capital markets yields handsome returns in the long run. However, one does not need a quantum of savings to invest in them. This makes way for small and regular investments in equity-oriented mutual funds whereby investors can benefit from their fund managers' expertise. Suresh Sadagopan, founder, Ladder7 Financial Advisories says, "Even with low incomes, one can still save something from one's income. SIP allows one to invest as low as Rs. 500 pm, which is feasible for almost anyone today. Even investing through small sums is a good start and helps in wealth accumulation and goal achievement."

In addition to equity-oriented mutual funds, you may invest regularly and in small amounts towards debt-oriented funds, liquid funds, fixed maturity return plans, and set up a systematic transfer plan (STP) for investment in equity funds

Saving taxes on investments made

Earning is synonymous with tax payments. This means that while planning your finances you must take care of your tax incidence too. Investing wisely helps reduce the tax liability to a bare minimum. CS Sudheer, founder and CEO, IndianMoney.com says, "When it comes to tax saving, people only think about saving tax while investing under section 80C of income tax Act, but they need to also check if those investments offer tax-free returns. Many investments offer tax benefits while investing but not at the time of maturity. Also, some investments (mostly in retirement plans) will have tax on the withdrawal of both principal & returns as well." You may choose from equity-linked savings schemes (ELSS) and SIPs that ensure capital appreciation sans the unwarranted tax burden.