SHOULD NEW INVESTORS START INVESTING FROM SHARE MARKET
In recent months almost 12 lakhs new investors have entered the share market. The main ideology behind this is to trade on shares as a source of income.
Basically, investors should understand there is a difference between speculation and investing. When you invest in a company, you should know the complete business operation, revenue, cash flow, and value.
From the personal experience, it is always advisable for the new investors not to come directly to investing in share market.
You are going to understand, what are important before becoming an equity investor.
FUNDAMENTALS OF FINANCIAL PLANNING:
The fundamentals of financial planning is our first topic. Which covers the complete foundation of what an individual should do before becoming an investor. Let have a quick recap,
1. Term Insurance.
2. Medical Insurance.
3. Emergency Fund.
4. Clear all debts.
Once you have done the above four attributes in your life. Then it’s the time when you can cut the ribbon to open a slot for investing.
We strongly advise people, without laying a strong foundation on the fundamentals, please avoid investing.
GET OUT OF TRADITIONAL METHOD OF INVESTING:
The traditional method of investing is normally termed as savings. When your deposits yield you a minimum of 8% return per year, then it is termed as investing.
So, traditional methods like saving in bank, recurring deposit, fixed deposit, Chit funds, gold chits, depositing in risky NBFC’s for high-interest rates.
As mentioned earlier, these savings methodology will not beat inflation.
Never use gold as an investment option, it is a kind of emergency fund.
START YOUR INVESTMENTS WITH FIXED INCOME INSTRUMENTS:
The fixed income instruments are the investments done on government schemes that have zero risks. This makes your capital safe.
As an investor, you should know how to protect capital than earning.
These instrument’s interest rates are changeable by GOI every quarter. Even though, these investments will always beat inflation.
The instruments are the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), Employee Provident Fund (EPF), Senior Citizen Savings Scheme (SCSS), and the National Pension Scheme (NPS).
These components should be given equal exposure in the investment portfolio. But you should not stop your investments reserved for these instruments.
CONTINUE YOUR INVESTMENT JOURNEY WITH DEBT FUNDS:
It is human psychology when your investment grows you get delighted. Same you can find with debt funds, the minimum return will be 7% and the graph will seem to be like fixed instruments.
There are many funds in the debt market, which yields an average of 9% per year in 5 years. It is the top priority of the investor to understand the risk and reward perspective of government and corporate bonds.
As an investor, you should have both the debt market (Bonds) and equity (shares) exposure. It is not about 50% equity and 50% debt.
It is completely the investor’s decision on the return they look for. There are many GILT funds which produced around 12-13.5% return per year for 10 years.
When investors get a positive return than a negative return, the psychology boosts them towards investing. So, personally while you come for investment journey start from debt funds like liquid funds and ultra-short-term funds. Then you can move for further debt funds or equity exposure.
If the tenure of your investment is between 7 days – 10 years, please choose debt funds or bonds.
LEARN EQUITY WITH MUTUAL FUND:
This is one of the big chapters which we will be taking through, for the time being, let me share the abstract.
Equity, the name which made some billionaires and many bankrupts. So, handling equity is a bigger task in the investment journey.
Without having enough market knowledge exposing towards equity is similar to injuring your own fingers.
So, to understand the term and fundamentals of equity market start investing in mutual funds. Index funds will more preferable.
Index funds perform similarly to the market and economic condition of the nation. These funds have only 0.1% as the expense ratios. So the performance will be 10-12% in 10-20 years of the time period.
As a new investor, learn using an index or large-cap funds. Don’t opt for small-cap funds as it yields more return. You can’t digest the risk appetite associate with the small-cap funds.
After the debt fund, mutual funds will the next investment option. In this journey, invest more time to learn on the stock market and its behaviors.
Minimum invest 3 hours a day to learn about the stock market.
The final zone of investment journey is buying shares.
To invest in shares, you should know how to do fundamental analysis of a company share.
Select the shares from the sectors you are familiar with. Don’t watch the YouTube channels and other promotions to pick a stock.
First, try to identify 5-10 companies. Study the company’s business and earnings completely.
Calculate the intrinsic value of the company and wait for the same price to buy.
Always invest the amount in shares, which will not hurt you if loose.
Shares should be used to earn dividend and transferring as assets to our children.
· As new to investing, investors should be more careful about capital protection.
· Investor shouldn’t come directly into equity shares.
· The investment journey should start with fixed income instruments, debt funds, equity mutual funds, and shares.
· Investors should avoid the mindset of greedy and should learn to control emotion.
WISH YOU ALL A HAPPY INVESTING