Fundamental Research vs Technical Research For Stock Market
To gain better returns from the stock market and avoid losing money, one must research thoroughly before investing. This research would help the investor to decide where and how to invest, so as to get good returns. The research is done extensively on different parameters depending on the requirements. There are two types of research done in the stock market namely: Fundamental and Technical Research. Both of the methods serve the purpose of earning through stock market but are differently implemented and used.
Fundamental research is widely used by the investors. It is used as a beforehand analysis for long term investments. In fundamental research, more emphasis is laid on the value of the stock which is determined by analysing various aspects of the company.
In this methodology, the price of the stock does not hold much importance. Rather, the economic aspects and its effect on the company’s health are analysed. In addition to this, other important factors which could affect the stock directly or indirectly in the long term are also observed. These factors include the following:
- Financial Data: Financial data of the company such as balance sheets, quarterly results etc. are deeply analysed. This is to ensure the company’s performance in the long run. All the details in these documents are studied precisely so as to get a clear idea about the company. Revenue model, assets, and liabilities are also analysed to determine the company as a good or bad stock.
- Industry Trends: All the details related to the industry of stock are analysed. The scope of industry in future, factors affecting it and its growth rate are deeply studied. Patterns are made to predict the performance of the industry, and thereby the future value of the stocks.
- Market Competitions: To determine the hold of the company in the market even its competition is studied so as to make a complete evaluation. This would help in determining the strength of the company and its future growth prospects amidst the competition.
- Economy: The updates of the economic events are also taken into account. The economy affects the company, also affecting the future value of stocks. Thus, a proper track of economy and its effects are maintained and analysed.
Fundamental research uses the concepts of Return on Equity (RoE) and Return on Assets (RoA). The sources of the research data are mainly the financial statements. It oversees both the past history as well as the future aspects. Fundamental Research is crucial for long term investment. It is considered as a traditional approach where the value of the company remains prominent.
Technical Research is widely used by the traders. It is the analysis made before short term investments. In Technical Research more emphasis is laid on the price of the stock. The future trend is determined by rigorously monitoring the past values of the stocks.
A trend is determined by deeply analysing past and current value. Once a trend is confirmed, it helps in predicting near future values. Thus, a trader buys a stock at a lower rate, in an uptrend and sells off as soon as a decent price rise is observed. The factors which are deeply analysed are as follows:
- Price Movements: Price movements are rigorously monitored. Patterns of trends are made using these price movements. These are used to predict fluctuation and near future prices. The stocks are not to be held for a long time. So, more emphasis is laid on the margin obtained between the buying and the selling price. This margin is optimized by using analysis made by studying price movements.
- Market Psychology: Market Psychology plays an important role in short term price fluctuations in the stock. It is always better to analyse it to gain most out of it.
Technical Research is crucial for short term investments. It is a statistical approach where the price of the stock is prominent.
Both the research methodologies are important to gain in the stock market. But their process and objectives remain different in the above manner, which can be used as per the convenience. To gain maximum returns, try to implement both these methodologies before you invest in a stock.
Basics Of Stock Trading
Not a day goes when we don't hear of some activity from the share market. Every little political happening seems to affect the Indian stock market in some way. But very few can claim to have an understanding of the trading in shares system. Some dedicated trading apps request to simplify everything to the layman, but only a few succeed in doing so.
Maximizing quick profit:
Trading has turned out to be a brilliant and attractive way to earn profits off late. It gives an opportunity to the trader to use his wealth in a manner to maximize his profits in the short-run. Instead of getting into the usual buy-and-hold investing, the trader tries to benefit from the fluctuating price of securities.
Must-Know Rules of Trading:
Trading is not rocket science as some people enter into it and earn profits fairly quickly by application of prudence and common sense. It is rather difficult to sustain profits from it. Regular profits from trading require patience and the wherewithal to remain in the business. There are some thumb rules that traders need to keep in mind to maximize their chances of earning from share market.
- The casual trader will do himself good if he approaches it as a business.
- He needs to have short term as well as long term goals.
- He also needs to consider the capital that he is willing to invest in the said business.
Furthermore, he needs to have an idea of the commodities he will invest in. However, it goes without saying that there are no set rules for trading and they need to be molded to fit the needs of the one trading. This requires research on the part of the trader and constant changing of the game-plan. Some stock trading platforms and websites are available for the purpose.
- While researching on the market may cause anxiousness for traders at the time of entrance, it is an inexorable part of a successful trading plan.
- New traders should always keep their focus on price. That is one crucial thing every experienced trader insists on. Two things in regards should be given consideration
- Sometimes buying stocks of a company which is running poorly can also turn profitable as an experienced one knows when to jump the ship, so to say.
- These short-term profits go a long way in contributing to the overall wealth of the trader.
- Traders require to be fast on their feet and to be able to think pragmatically, meaning thereby, that they should stick to stocks that are traded actively. This is like a golden rule for traders at the beginner level.
- New traders need to build up on their understanding of the markets, through reading books, articles and following the trends to enhance their knowledge.
One of the basic mistakes made by new traders is that they try to out-think the market. But it needs to be understood that things can go astray very quickly in stock markets. Hence due diligence is necessary before jumping into the trading sea.
6 Tips To Start Investing In Stock Market
Equity Trading is not a game. When you start reading and learning about it, you will see that it is a profession in itself. Before investing, an individual needs to know a few basics and risks associated with it. This has to be done before you start to trade in real time stock markets.
Here are 6 tips to give you a better idea about stock markets and get you started on this investment journey:
Don’t Invest Your Savings:
Stock markets are known to be high-risk investments where there is no guarantee of receiving your principal investment back. Hence, it is wise to not get sucked into the lure of higher returns. It is advised to invest in the stock market only once you have other savings that are more secure. Having fairly secured your future, you can then afford risks and make a move towards the stock market.
Maintain Investment Discipline
Fluctuations in prices are nothing new within the stock market. This volatility in the market has sometimes caused a lot of investors to lose their money. Also, timing the market in such conditions becomes a tough task. To avoid losing your money, one can adopt a disciplined approach towards investing. Systematic Investment Plans (SIPs) is one way of doing so. When you have discipline and patience in monitoring your portfolio, chances of generating great returns become brighter.
Manage Risk & Money Wisely
As an Investor, you cannot control the market but surely you can manage your money in every transaction you make. Even if you have a good trading strategy it can be all for nothing. You need to have money left in your investment as well. One of the best techniques of managing your invested money is by using the stop loss tool.
When the threshold value of your investment reaches between 5-15% the stop loss tool will automatically trigger an order. This order will release the investment and avoid further loss.
Hold Diversified Portfolio
The stock market is filled with companies from various sectors and fields offering many services. Diversify your stocks into different industries. This way if one industry of your investment is down performing, another might shoot up. You should focus on stocks of reputed companies that offer more guaranteed returns. However, keep a few stocks of newer companies that you trust to grow. This enables you to maximise your profits in the future.
Keep a Long-Term Goal
Stock markets are volatile in the short term but over the long term period they are less risky and offer better overall returns. Holding stocks for a longer time period is more likely to get you great returns. Hence, it is better to invest in stocks with a long term view rather than a short term one. It is a good idea to lock in money which you won’t need in the near future. This way if you sell the stocks when the prices are down you may lose money at the start but over the years the stocks tend to catch up.
Remember - A Stock is a Company
No matter whether you earn or lose it is important to remember the basic idea behind this investment. You are investing in a company that you trust and hope will grow in future. Hence, do not get caugh thinking of stocks as a game or gamble. Your money is invested in a real company, where real work has to be done for your investment to grow. It is, therefore, important for you to find out all you can about the company and find a right estimate of its future potential. You should also consider whether these goals align with your own investment goals.
The ABC’s of Investing
The money that you earn is partly spent and the rest is saved for a rainy day. Savings refer to the funds that are kept aside in safe custody, such as a savings account. Instead of keeping this money idle, you can invest your savings in various financial instruments which will pay you a hefty return in the near future.
The question that arises now is how and where to invest this money. Potential investors can always take the help of a financial advisor and an investment advisor, both of who are capable of providing detailed knowledge on the subject on investment and investing money. Investors can start investing after fulfilling the following simple steps:
- Obtaining documents relating to Personal Identification Proof and Address Proof.
- Approaching intermediaries like a broker, RM etc.
- Filling up the KYC form and furnishing the details required.
- Filling up of the broker-client agreement.
- Opening a DEMAT Account and linking it with a savings account.
As soon as these steps are completed, an investor can start investing in the financial market.
The investment options can be well classified into 2 parts. They are:
- Physical assets: It comprises of tangible items like real estate, commodity, goldand silver in the form of jewelry and even antiques.
- Financial assets: It comprises of FDs with banks, small savings instruments with the post offices, provident fund, pension fund, money market instruments and capital market instruments.
The money market gives the scope of short term investment options. It deals with debt instruments such as bills of exchanges, commercial bills, treasury bills, certificate of deposits etc. These have relatively low risk and relatively low returns. However, they are one of the safest investment options, especially for those investors who want to play safe.
A capital market is an option for long term investment. The various instruments of capital market are shares of companies (equity), mutual funds, SIP investment, derivatives market, IPOS, etc. These have a higher risk and higher returns in comparison to the instruments of the money market. Although stock investing is considered to be more rewarding, the high risk factor associated with it can result in loss if there is a downswing in the activities of a company.
The investment strategies of an individual depend on certain factors, such as:
- The risk taking appetite of investor
- The time horizon of investment
- Expected return
- Need for investment
Investments make our fund grow over a period of time whereas savings is just idle cash. Our short term needs can be fulfilled with the help of our savings but for the achievement of our long term financial goals, investment is a must. This is only possible with financial planning.
What is the right age to buy a term life insurance cover?
Death comes knocking at the door without any prior notice. The death of the only breadwinner of the family brings the family into severe financial crisis. This is the time when you realise the importance of a term insurance policy the most. A term insurance plan secures the life of your loved ones and helps them to meet their day-to-day expenses. It is always better to buy a term insurance plan early in life as an individual gets immense benefits for starting early. Also, the premium charges are also low when you are young.
Let’s take a look at the different ages and factors that one should consider while buying a term insurance.
During the 20s, an individual just steps into his professional life and is relatively debt free. He has lesser family responsibilities and buying a term cover at this age can help him pay off his education loans if any. Moreover, term insurance premiums are less expensive when an individual is young.
An individual, in his 30s, tend to have family and kids. While his income is higher at this age, the responsibilities are much more. He may have financial liabilities like home loan, car loan etc. The premium will tend to be slightly higher, given the family responsibilities.
During this age, an individual’s long term financial liabilities like a home or car loan is paid-off. However, he may have higher responsibilities like his child’s higher education or his own retirement planning. It is better to opt for a cover which provides a greater coverage and financial protection. The cover should be able to take care of your family expenses after your death.
When an individual reaches this age, his children already start earning and most of the debts are paid-off. Family members are not financially dependent on your earnings. During this age, what an individual is most concerned about is his retirement. At this age, the best option for an individual is to buy an endowment plan which will help him save and give him a lump sum amount on maturity.
Term Insurance Premium amounts for a cover of Rs. 50 lakh
The above table shows the difference in premiums as per the age of an individual. As the age increases, premium increases.
Age plays a major role in deciding the amount of your term insurance. The biggest mistake an individual makes is to not opt for a substantial cover for the family. One should make sure that the term cover takes care of all the basic necessities of the family in case of the sudden demise of the policyholder.
Tax Saving Investments and their Features
This is the time of the year when you start getting calls from the HR of your company asking for investment declarations. If you have not made any investments yet, here is the list of instruments where you can invest.
|Instrument||Investment||Section of IT Act||Lock-in Period||Returns||Risk||Taxation at Maturity|
|ELSS||ELSS is a type of mutual fund scheme where most of the fund corpus is invested in equities or equity-related products.||80C||3 years||Not fixed, depend upon the performance of equity market. However, in the past, ELSS has given average returns of 12-14%.||Carries some risk||Tax-free|
|PPF||It is a type of investment which is provided by the Government of India||80C||15 years||The rate of returns changes as per government policies.
Current returns - 8.1% compounded annually
|NSC||NSC are bonds issued by the government for small savings and one can purchase these bonds from post offices.||80C||10 years||The interest rate on NSC is decided by the government every year. It is linked to the yield of 10-year government bonds.
The current interest rate is 8%.
|Low Risk||Interest is Taxable|
|Pension Mutual Funds||Pension Mutual Funds invest 40% of the money in equity and 60% in debt instruments.||80C||Until you reach the age of 58||The returns in pension mutual funds are not fixed as it depends on the performance of the equity and debt market. Pension mutual funds have given an average return of 8-10% for a 5-year and 10-year period.||Carries some risk||Tax-free|
|Tax Saving FD||It is a special fixed deposit made with any bank.||80C||5 years||The interest rate varies from one bank to another. It usually ranges from 6.5-7.5%.||Risk Free||Interest earned is taxable|
|Rajiv Gandhi Equity Saving Scheme||Exclusively for first time retail investors. Individuals with an annual income below Rs. 12 lakh can invest.||80CCG||3 years||Depends on the performance of equity markets.||Carries some risk||50% of the invested amount|