Article

5 Things to check while you are buying a new stock

Nutan Gupta

27 Mar 2018

Investing in the stock market is one of the most exciting areas in the trading business. But before start trading in the stock market, here are a few basic things that you will require to know before or while you invest in a new stock:

Stock Market Investing

Know that you own a part of that particular business you are investing in

Most people have the misconception that investing in stocks is equal to investing in the market. In reality, you are investing in stocks and not in the market. Stock trading means investing in the equity shares of a company. This makes you the shareholder of the company whose stock you are buying, and this makes you the owner of a small part of the business. When you invest in stocks, you become a part of the profits and the losses that company suffers. Therefore, investing or buying new stocks of a company requires an in-depth knowledge about the performance of that company.

The price-earnings ratio (P/E ratio)

While you invest in the stocks of a company, it is important to understand and to know the P/E ratio of the company. It is important to keep in mind that even a new company that shows promising growth is capable of giving you huge profits on your investment. You can get to know the P/E ratio of the company by comparing the current market price of the company with the cumulative earning of that particular company in the endmost four quarters.

Beta

The concept of beta might seem to be a complicated, but this is not the case. Major providers of stock data will give you an idea of the beta on the same page where you will find the P/E of the company on whose stock you will to invest. Beta is the risk indicator. If a company has a high beta, it can give you high returns but can also give you huge loses. Investing in a low beta company is associated with less risk. Investing in a low beta company is safer for newcomers because of the low-risk factor.

Keep a close eye on the market

Always keep an eye on the market to know when the stock you desire buying reaches the best buying price which will enable you to earn high returns. Therefore, while you buy a new stock do not forget to study the market closely and if you cannot do so, try and get an expert's opinion on the subject.

Buy what you know

This is the best thing that you can do for a safe trading while you invest in stocks. Investing in the stocks best known to you will lower your chances of an enormous loss.

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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 Things to check while you are buying a new stock

Nutan Gupta

27 Mar 2018

Investing in the stock market is one of the most exciting areas in the trading business. But before start trading in the stock market, here are a few basic things that you will require to know before or while you invest in a new stock:

Stock Market Investing

Know that you own a part of that particular business you are investing in

Most people have the misconception that investing in stocks is equal to investing in the market. In reality, you are investing in stocks and not in the market. Stock trading means investing in the equity shares of a company. This makes you the shareholder of the company whose stock you are buying, and this makes you the owner of a small part of the business. When you invest in stocks, you become a part of the profits and the losses that company suffers. Therefore, investing or buying new stocks of a company requires an in-depth knowledge about the performance of that company.

The price-earnings ratio (P/E ratio)

While you invest in the stocks of a company, it is important to understand and to know the P/E ratio of the company. It is important to keep in mind that even a new company that shows promising growth is capable of giving you huge profits on your investment. You can get to know the P/E ratio of the company by comparing the current market price of the company with the cumulative earning of that particular company in the endmost four quarters.

Beta

The concept of beta might seem to be a complicated, but this is not the case. Major providers of stock data will give you an idea of the beta on the same page where you will find the P/E of the company on whose stock you will to invest. Beta is the risk indicator. If a company has a high beta, it can give you high returns but can also give you huge loses. Investing in a low beta company is associated with less risk. Investing in a low beta company is safer for newcomers because of the low-risk factor.

Keep a close eye on the market

Always keep an eye on the market to know when the stock you desire buying reaches the best buying price which will enable you to earn high returns. Therefore, while you buy a new stock do not forget to study the market closely and if you cannot do so, try and get an expert's opinion on the subject.

Buy what you know

This is the best thing that you can do for a safe trading while you invest in stocks. Investing in the stocks best known to you will lower your chances of an enormous loss.