Stock Market

Top 3 Safest Ways to Invest in The Stock Market in 2021

Every one of us at some point in our lives has contemplated whether to invest our hard-earned money in the stock market or not. And the decision is not easy. On one side of the scale, we have success stories of people like Rakesh Jhunjhunwala, R.K Damani, and Vijay Kedia who have amassed wealth beyond our wildest dreams from the stock market. On the other side, we have the pent-up fear and caution fed into our minds by people around us. 

 Safest ways to Invest in the Stock market

And the scale seems to have tipped towards the latter because fear is the most powerful emotion. Actions motivated by fear are quick and absolute. To the people of our society, the risks associated with the stock market far outweigh its benefits. People look at the Stock Market as some sort of a deep hole that swallows every last bit of money in our pockets.

But is everything mentioned above true?

Although investing in the stock market comes with a significant amount of risk, it’s not something to be afraid of. It’s nothing like the bottomless hole, it is thought to be. Just like any other line of work that gives you money in return, you need a certain amount of skill that you can leverage to earn money. It’s not a game of sheer luck.

And even if you do not possess the technical skills, you can compensate for it with patience and discipline. For those of us who have a low-risk appetite, the stock market has something for us as well. 

There are low-risk financial instruments that can reward you with handsome results. We will explore some of the safest ways to invest in the stock market through this article.

Let’s begin!

Low-Risk Financial Instruments in the Stock Market

Some of the low-risk financial instruments offered in the markets are-

Safe ways to invest in the Stock Market

1. Money Market Funds and Money Market Accounts

Money market funds, also known as Money market mutual funds, are low-risk financial instruments that invest in highly liquid cash equivalent or debt-based securities. In the investment spectrum, T-bills are considered extremely low risk. These instruments are best suited for people who do not wish to lose their principal and earn interest on their investment.

These funds have a history of protecting the capital of the investors and market fluctuations have little to no effect on them.

Safe ways to invest in the Stock market

Although Money Market Funds and Money Market Accounts may sound similar, they are not the same. Money Market funds are backed by Investment funds while Money Market Accounts are special accounts that ensure the security of the capital and promise to pay interest on the deposit. These are backed by Financial institutions and insured by Federal Deposit Insurance Corporation (FDIC).

Therefore, Money Market Accounts are safer than Money Market Funds. These investments are not suited for the longer term and are often used to park money while switching investments.

2. Municipal Bonds

Municipal Bonds are low-risk financial instruments that are issued by government bodies to raise funds for all the different projects. In a Municipal Bond, the government promises to repay the capital with interest.

The repayment may be in installments or bulk at the end of the tenure. The safety of these bonds is ensured by the government itself and therefore, these instruments are considered to be safe.

Municipal Bonds were first issued in India in 1997. The Bangalore Municipal Corporation issued the first Municipal bond for some local development projects followed by Ahemdabad.

One of the safest ways to invest in the stock market

But the popularity of Municipal Bonds was short-lived. After the initial investor participation, the financial instrument lost its popularity and succumbed. It was revived by SEBI through its regulations to ensure the proper functioning of municipal bonds.

Municipal Bonds in India enjoy a tax-free status if the investors adhere to some rules and regulations. The interest rate is variable and depends on the market fair.

3. Treasury Bills

When the obligations of the government surpass the annual earnings, the government is said to be in a Fiscal deficit. To overcome the deficit and meet its expenditure obligations, the government issues Treasury Bills.

Treasury Bills or T-bills are low-risk financial instruments that are issued by the government of India as a promissory note for a guaranteed repayment at a later date. The government uses the funds collected through T-bills to meet its short-term requirements.

The minimum amount that can be invested in T-bills is Rs.25,000 and the amount increases linearly in multiples of Rs. 25,000.

Treasury Bills are one of the safest ways to invest in the stock market

There are three different tenures for T-bills in India, the shortest is the 91-day T-bill, then there’s a 182-day T-bill, and finally the highest 364-day T-bill. T-bills are considered to be zero-risk instruments as they are issued by the government of India itself

But T-bills are not a good option for long-term investments as their maximum tenure extends only up to a year.

All of the above-mentioned financial instruments carry minimal risk and provide respectable returns over the short term. But there are two issues with these instruments. The first issue is that they do not belong to the stock market and the second is that they are not suitable for long-term investments.

Therefore, let’s discuss some safe ways to invest money in the stock market that are suitable for both the short-term and long-term.

3 Safe Ways To Invest Money in The Stock Market

Investments in the stock market always carry risk with them, there is no way to make a risk-free investment in the stock market. But if we pick our investments carefully, we can minimize the risk. So here are a few ways that you can try to minimize the risk involved while investing in the stock market.

1. Invest in Mutual Funds

One of the safest ways to park your money in the stock market and earn impressive returns on the capital is to invest in mutual funds. Mutual Funds are essentially a collection of stocks and other mutual funds carefully picked by a veteran fund manager with decades of experience in the stock market.

Mutual Funds have a pre-determined rate of return mentioned in their prospectus that they rarely miss. Not to mention, the average rate of return on mutual funds in India over a 5 year period is above 15% p.a. And the skills and experience of the Fund manager ensure the safety of your money.

Mutual Funds

Investing in mutual funds is one of the most convenient ways to invest your money. An expert does all the research and work involved in the process, and you get to collect the rewards at the end of the process. Although the risk involved with mutual funds is comparatively higher than T-bills or Municipal bonds, the returns are exponentially higher.

The majority of veteran investors in our country advise beginners and working-class investors to invest in mutual funds. Because it is better to have an expert invest your money in the market than to pick stocks on a whim and lose all your capital.

2. Invest in ETFs

Exchange-Traded Funds (ETFs) are a type of financial instrument that tracks an index, sector, or commodity. It is not actively managed by a fund manager. It is an autonomous fund that governs itself and replicates the return of the index, commodity, or sector it tracks.

ETFs are undoubtedly one of the safest ways to invest money in the stock market in the longer term. A fund that traces an index is the best option of all the ETFs as it contains the weighted average of all the constituent stocks in the index. And an index like Sensex represents a major part of our economy. Consequently, the ETF grows in the long term just like the economy of our country.

Exchange Traded Funds

In the words of veteran investor John C. BogleDon’t look for the needle in the haystack. Just buy the haystack!”. It means that instead of picking stocks from the pile, it’s better to own a piece of the pile itself. Because in the longer run, the pile of stocks put together will surely increase in value. 

3. Invest in Monopoly Stocks

Monopoly stocks are the stocks of companies that have a monopoly in their sector. These companies enjoy a majority stake in their sector without any big competitors to dethrone them in the near future. These companies are too big to fail and therefore a safer alternative to other stocks.

Tesla has a monopoly in the electric vehicles sector, Asian paints have a monopoly in the paints sector in India, The Indian Energy Exchange (IEX) is the only online marketplace for the trade of surplus energy and therefore enjoys a monopoly in the sector. These are some of the monopoly stocks. 

Monopoly Stocks

If after investing in Mutual funds and ETFs you have some funds at your disposal and the investor in you wants to do some stock-picking. Go for monopoly stocks, these are one of the safest stocks to pick. And if you wish to explore some more investment options, you can read some good books on investing. Take a look at our article on the Top 10 best books on the Stock market.

Here, above mentioned are the three safest ways to invest in the stock market. We hope that these methods will help you mitigate the risk and curb your losses. So that you can enjoy good returns on your investment without worrying about the risk involved.

If you have any queries or suggestions, we are more than happy to hear them out in the comments below!

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