If you listen to anybody in finance, they’ll tell you that you should invest or you will be poor. Your friends and parents might also be making you feel guilty that you aren’t investing. In most cases, no one will tell you how to invest or give you horrible advice. This is a challenge I face with my friends and family. I spend an hour giving them gyan about stocks and mutual funds, and at the end, they always say, Yeah, all that’s ok, just tell me what to buy 
There are only two solutions:
- Find a financial adviser.
- Do it yourself (DIY)
We have very few financial advisers in India, and finding a good one is harder than spotting a multi-bagger stock. As for DIY investing, at the very least, you need to know the basics of money, saving, and investing. The problem is that most people don’t want to learn the basics.
Should they learn?
Yes.
Will most people sit and learn?
No. The odds are that they will end up taking the wrong advice from the wrong people, like loudmouths on YouTube, for example.
So, what’s the solution?
There’s no magic bullet, but I have a small hack. I want to be clear, it might not work for everyone, but it’s one way of getting over the fear of starting to invest.
One of the biggest hurdles in investing that I have noticed is taking the first step. Most people are intimidated at the beginning, and rightfully so. Investing can seem like a nightmare. The financial services industry has done a wonderful job of scaring people away. In my own experience and that of some of my friends, I’ve seen that taking the first step is often the biggest hurdle to investing. Things start getting a lot easier after that.
That begs the question, what should be the first step?
Most new investors get paralyzed here. Here’s my suggestion.
If you are one of those people who can sit, learn about investing, and then start investing, there’s nothing like it. But most people (including me) aren’t wired like that. So the solution is to do one thing at a time. When starting your investment journey, as long as you are committed, it’s okay to take it slow.
A simple first step is to ensure that you don’t keep all your money in a savings bank account.
Why?
Most banks pay an interest rate of just about 3% on savings accounts. So the first step is to figure out how to earn more than your savings account. Most people recommend bank fixed deposits (FD), and there’s nothing wrong with them. The problem is, unless you are mega-rich, it’s impossible to retire just by saving in FDs.
To retire comfortably, you need a lot of money. For that, you will have to take some risks and invest in asset classes like equity with higher expected returns. Most people are intimidated by stocks and equity mutual funds, so the best thing they can do is take it slow. This is why I think starting to save in an overnight mutual fund is a good option. Overnight funds are the least risky category of debt mutual funds.
Overnight mutual funds are very short-term debt funds that offer returns similar to those of fixed deposits. An overnight mutual fund scheme is offered by asset management companies (AMC) like HDFC and ICICI. These AMCs collect money inside overnight mutual fund schemes and lend the money to banks, corporations, and other institutions. The money is only lent for one day and is mostly fully collateralized. So the fund gets its money back every day and then lends it out. Since the maturity is just one day, there is no interest rate risk and negligible default risk.
Why overnight mutual funds?
One way of learning new things is by doing, and this was my personal experience as well. When I started investing in mutual funds, I knew very little and made some obvious mistakes, but the fact that I was investing and had some money at stake meant that I had an incentive to learn. It took some time, but then I learned the basics and figured out what works for me. If you think about it, you will realize that it’s the same with a lot of your hobbies as well.
So when you invest in an overnight fund, you are indirectly investing in the stock market. Once you invest in an overnight fund, you’ve already taken the first step toward investing in the markets. The other advantage is that since you have money at stake, you might become curious and start learning about other types of mutual funds, stocks, and other things. Because you eventually have to invest in stocks (equities) or equity mutual funds, investing in an overnight fund is a reasonable first step in that journey.
The reason behind saving in an overnight mutual fund isn’t to become rich, you can’t. The idea is to take the first step in the stock market, which can push you to learn more and invest better. This is as good a way to force yourself to learn about investing as any.
This won’t work for everyone, but there aren’t perfect solutions for getting more people to invest. I’ve been thinking about this problem for a long time and figured this is one small solution out of many.
How do I pick an overnight mutual fund?
You don’t have to think so hard that your brain explodes. Just open Coin or any mutual fund app you use, sort these funds by AUM, and choose the biggest fund. That’s it. A lot of other companies and institutions use the largest funds to keep their own money, so the AMCs have an incentive to ensure the money in these funds is well managed. That doesn’t mean the risk is zero, but the largest funds are as safe as they can get.
Where can I learn more about saving and investing?
Zerodha Varsity, of course 