Article

5 Questions You Must Ask About The Company You Are Investing

Nutan Gupta

03 Apr 2018

It is not a tough task to invest your money into a company, but what is tough is to invest successfully. It is not possible that all the investors who enter the share market with the motive to earn money will be able to make money they dream of. It is estimated that 80% of the investors in the market do not make any profit but end up losing their money. The reason why a majority of the people loses their money in stocks is that they go with the sentiments and follow the herd. If proper research and analysis back your investments, then it is very rare that you suffer any significant losses. Key to success in share market is never to face major losses because it wipes out your capital which you planned to earn money from.

Here we bring you five things to watch in a company you plan to invest your hard earned money into:

Questions About The Company Before You Invest

1) What do they do?

It is crucial to know in which field / sector the company operates thoroughly. What do they manufacture or what services do they provide? What are their existing and future / planned products? What are the growth prospects? What position do they hold in the market? It will be of great advantage if you have some amount of knowledge about reading the income statement and balance sheet of the company.

2) What is the size of the company?

Market capitalization defines any company listed on the stock exchange. Companies with market capitalization of Rs. 10,000 crore or more are called large-cap stocks. The ones with market capitalization between Rs. 2,000 crore to Rs. 10,000 crore are called mid-cap stocks and those below Rs. 2,000 Crore are known as small-cap stocks. Now you must be thinking as to why this is important then this table can give a clear picture why market cap plays such a significant role:

Parameter Large Cap Mid Cap Small Cap
Risk (Probability of negative returns) Low High Very High
Probability of Exceptionally High returns Low High High
Liquidity Very Good Good Low
Company Information Available Very Good Good Poor

3) What is the Price/Earnings Ratio?

Also known as PE ratio, it is the measure of how much money you need to invest to make an earning of one rupee. It can be calculated by dividing the current market price of the stock with the cumulative earnings made by the stock in the last four quarters. The lower the PE ratio is, the greater is the return for every unit of money invested.

4) What are the dividends you can get?

If you are a lazy kind of investor and have long-term investment goals, then you need to watch out for the bonus provided. The dividend is a fixed rate of return a company pays to all the equity shareholders every fiscal year irrespective of rise or fall in the stock prices. If you want to park your money into some stock, then looking for higher dividend is a good option.

5) What story do the graphs tell?

It is one of the easiest ways to find if the stock you are eyeing at has grown in the past or has gone for a rollercoaster ride in past time. All the great stock monitoring sites have charts ranging from a day to past 10 years. A company with continuous fall is a not a safe option to invest unless you have exceptional risk appetite.

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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 Must Ask About The Company You Are Investing

Nutan Gupta

03 Apr 2018

It is not a tough task to invest your money into a company, but what is tough is to invest successfully. It is not possible that all the investors who enter the share market with the motive to earn money will be able to make money they dream of. It is estimated that 80% of the investors in the market do not make any profit but end up losing their money. The reason why a majority of the people loses their money in stocks is that they go with the sentiments and follow the herd. If proper research and analysis back your investments, then it is very rare that you suffer any significant losses. Key to success in share market is never to face major losses because it wipes out your capital which you planned to earn money from.

Here we bring you five things to watch in a company you plan to invest your hard earned money into:

Questions About The Company Before You Invest

1) What do they do?

It is crucial to know in which field / sector the company operates thoroughly. What do they manufacture or what services do they provide? What are their existing and future / planned products? What are the growth prospects? What position do they hold in the market? It will be of great advantage if you have some amount of knowledge about reading the income statement and balance sheet of the company.

2) What is the size of the company?

Market capitalization defines any company listed on the stock exchange. Companies with market capitalization of Rs. 10,000 crore or more are called large-cap stocks. The ones with market capitalization between Rs. 2,000 crore to Rs. 10,000 crore are called mid-cap stocks and those below Rs. 2,000 Crore are known as small-cap stocks. Now you must be thinking as to why this is important then this table can give a clear picture why market cap plays such a significant role:

Parameter Large Cap Mid Cap Small Cap
Risk (Probability of negative returns) Low High Very High
Probability of Exceptionally High returns Low High High
Liquidity Very Good Good Low
Company Information Available Very Good Good Poor

3) What is the Price/Earnings Ratio?

Also known as PE ratio, it is the measure of how much money you need to invest to make an earning of one rupee. It can be calculated by dividing the current market price of the stock with the cumulative earnings made by the stock in the last four quarters. The lower the PE ratio is, the greater is the return for every unit of money invested.

4) What are the dividends you can get?

If you are a lazy kind of investor and have long-term investment goals, then you need to watch out for the bonus provided. The dividend is a fixed rate of return a company pays to all the equity shareholders every fiscal year irrespective of rise or fall in the stock prices. If you want to park your money into some stock, then looking for higher dividend is a good option.

5) What story do the graphs tell?

It is one of the easiest ways to find if the stock you are eyeing at has grown in the past or has gone for a rollercoaster ride in past time. All the great stock monitoring sites have charts ranging from a day to past 10 years. A company with continuous fall is a not a safe option to invest unless you have exceptional risk appetite.