Trading in Equity? Read this checklist before progressing into the equity market!

Nutan Gupta

17 Feb 2017

Trading in equity market can be compared to marriage to a large extent. One needs to have commitment and long-term approach for both. However, here is a checklist one must follow before investing in the equity market.

Long-term Approach

When an investor starts investing in the equity market, he must invest with a long-term view in mind. Investing for a longer period of time can multiply your investments while giving you superior returns. Equity markets can be quite volatile in the short-term as it tends to react to every announcement made in the country. A long-term approach provides stability to your portfolio.

Avoid Relying on Tips

A lot of people think that they are experts in the equity markets after investing and making profit a couple of times. They go ahead on giving advice to their fellow mates regarding which stock to buy and which to sell. When you are new to trading, a lot of people will give you stock tips. Refrain from acting on such tips as you can end up making losses. It is always better to consult your financial advisor or a person who has expertise and knowledge about the equity market.

Do not depend on the News Flow

One must avoid investing based on any news which is out in the market. Stock markets take some time to adjust to any news. So, making hasty decisions and investing quickly based on the news flow can prove to be a bad idea.

Avoid Timing the Market

Equity market is something once cannot control. Even a person who has been investing in the equity market for a decade or two cannot time the market. If you try timing the market, it is very likely that you will take a lot of wrong decisions and end up ruining your portfolio.

Do not Speculate

One must avoid speculating an event before it occurs. Speculative investing is when an individual assumes a certain event, its impact on the stock and invests accordingly. If an individual speculates that the stock will go up after a particular event, and the event does not occur, or the stock does not react as predicted, one can bear a huge 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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Trading in Equity? Read this checklist before progressing into the equity market!

Nutan Gupta

17 Feb 2017

Trading in equity market can be compared to marriage to a large extent. One needs to have commitment and long-term approach for both. However, here is a checklist one must follow before investing in the equity market.

Long-term Approach

When an investor starts investing in the equity market, he must invest with a long-term view in mind. Investing for a longer period of time can multiply your investments while giving you superior returns. Equity markets can be quite volatile in the short-term as it tends to react to every announcement made in the country. A long-term approach provides stability to your portfolio.

Avoid Relying on Tips

A lot of people think that they are experts in the equity markets after investing and making profit a couple of times. They go ahead on giving advice to their fellow mates regarding which stock to buy and which to sell. When you are new to trading, a lot of people will give you stock tips. Refrain from acting on such tips as you can end up making losses. It is always better to consult your financial advisor or a person who has expertise and knowledge about the equity market.

Do not depend on the News Flow

One must avoid investing based on any news which is out in the market. Stock markets take some time to adjust to any news. So, making hasty decisions and investing quickly based on the news flow can prove to be a bad idea.

Avoid Timing the Market

Equity market is something once cannot control. Even a person who has been investing in the equity market for a decade or two cannot time the market. If you try timing the market, it is very likely that you will take a lot of wrong decisions and end up ruining your portfolio.

Do not Speculate

One must avoid speculating an event before it occurs. Speculative investing is when an individual assumes a certain event, its impact on the stock and invests accordingly. If an individual speculates that the stock will go up after a particular event, and the event does not occur, or the stock does not react as predicted, one can bear a huge loss.

Have Referral Code?