How should I invest money?

As a new graduate, the first thing you should do is to lock down as much money as possible in savings. When I graduated and got my first job, I immediately bought my dream car - a new Mustang GT convertible. Not the best of my financial decision ;-). Although I fixed the rest of my financial budget, this one was too tempting for me to resist. This is the thing you have to guard against: avoid the temptation to splurge.

What you should instead do, live like a student a little longer. The first 2 years after graduation is when you should try to secure your financial future. Unless you manage your savings, it is hard to manage your investments.

1.If you are a single person just out of graduation, your goal should be to save half of your 12 lakhs in the bank. You should have enough bank savings to last 6 months of your monthly expenditure. Keep this in a fixed deposit. Once you are tight enough to manage this, proceed to the next step.

2.Start with balanced mutual funds that are fairly less risky.

3.By now, you should have figured out what mutual funds are, what SIP is and other basics in investing. In the next step, start playing with equity funds. In the early stages of your career you goal should be hold more than 50% of your investment in equity funds. As you grow older, move a part of the investments to bonds/bank savings.

In summary, the first rule of investing is to save. Unless you have sizable money to invest, your above-market returns would not matter. Once you have built your safety net, go after mutual funds and then to equity funds/stocks.