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5 Questions You Ask Yourself While Purchasing A New Share

Nutan Gupta

27 Mar 2018

Whether you are a young guy in college, wishing to earn some money to reduce dependency on pocket money or a person who has just started his career and are not satisfied with salary and so forth, you can venture into share market and make smart investments.

We present you with five things to check before you go out into the stock market and start investing in stocks:

5 Questions

What returns do you want?

Ask yourself this question that how much money do you want to make out of the investment and for how long you want to invest. Also, you should know why are you investing?

If you want to invest for buying a car worth ten lakhs after five years, then your investment needs to be different from a person who wants to spend money for his post-retirement expenses.

How much risk can you take?

When we see an advertisement for a mutual fund on TV, something is blurted out rapidly which rarely people notice or understand, i.e., “Mutual Fund investments are subject to market risk. Please read the offer documents carefully before investing”. The same thing also applies to any investment instrument. You should know that with the opportunity to grow your money comes the risk of losing it as well. One should never invest all of their money in one single scheme / instrument because this makes it riskier.

Big or Small?

There are some famous and large enterprises which are listed on stock exchange and many small ones also. Both of them have pros and cons of their own. Big blue-chip companies can promise a stable but slow growth. Small caps can be surprising at times and can give out double-digit growth in a single trading session. However, along with these surprise elements also comes the risk, such companies’ share may have a debacle if even one significant shareholder pulls out of the company, thus wiping out a big share of your investment.

Did you do the homework?

Warren Buffet says "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble".One should have done a good amount of research about the company, and also the sector company belongs. It is important to know what the company does exactly. If you have an understanding of annual reports and balance sheets, then it is advisable to go through it and have an idea about company’s recent performance, and its ranking in the sector.

Do you love it?

When you are investing in any company’s shares, don’t buy them because you like the company or its product, or be it that your father held the shares of same company so you too should have it. It is strictly advised to keep emotions out of stock market as the market works on Greed and Fears; you know two fluctuating things should not stay together.

Now we hope you are ready to take your first steps to share marketing so ahead and make the leap.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 

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5 Questions You Ask Yourself While Purchasing A New Share

Nutan Gupta

27 Mar 2018

Whether you are a young guy in college, wishing to earn some money to reduce dependency on pocket money or a person who has just started his career and are not satisfied with salary and so forth, you can venture into share market and make smart investments.

We present you with five things to check before you go out into the stock market and start investing in stocks:

5 Questions

What returns do you want?

Ask yourself this question that how much money do you want to make out of the investment and for how long you want to invest. Also, you should know why are you investing?

If you want to invest for buying a car worth ten lakhs after five years, then your investment needs to be different from a person who wants to spend money for his post-retirement expenses.

How much risk can you take?

When we see an advertisement for a mutual fund on TV, something is blurted out rapidly which rarely people notice or understand, i.e., “Mutual Fund investments are subject to market risk. Please read the offer documents carefully before investing”. The same thing also applies to any investment instrument. You should know that with the opportunity to grow your money comes the risk of losing it as well. One should never invest all of their money in one single scheme / instrument because this makes it riskier.

Big or Small?

There are some famous and large enterprises which are listed on stock exchange and many small ones also. Both of them have pros and cons of their own. Big blue-chip companies can promise a stable but slow growth. Small caps can be surprising at times and can give out double-digit growth in a single trading session. However, along with these surprise elements also comes the risk, such companies’ share may have a debacle if even one significant shareholder pulls out of the company, thus wiping out a big share of your investment.

Did you do the homework?

Warren Buffet says "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble".One should have done a good amount of research about the company, and also the sector company belongs. It is important to know what the company does exactly. If you have an understanding of annual reports and balance sheets, then it is advisable to go through it and have an idea about company’s recent performance, and its ranking in the sector.

Do you love it?

When you are investing in any company’s shares, don’t buy them because you like the company or its product, or be it that your father held the shares of same company so you too should have it. It is strictly advised to keep emotions out of stock market as the market works on Greed and Fears; you know two fluctuating things should not stay together.

Now we hope you are ready to take your first steps to share marketing so ahead and make the leap.