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Sunday, January 1, 2017

Pointers to Stock Investment

Investing in stock market is risky- we all know this fact. But how risky ? - This is the question which we all want to know or some people don't want to know just because being risky is enough for them to stay away from the market.

Before reading further let me put this declaimer : "I am a fairly new investor(1 and half year old in market to be precise), so my view will be fairly limited to my experience of market as well as studies done by me.

This article is all about how to learn and start investing in market without taking much risk. Let's start. (Earlier you start, better the returns):-

  • If you don't want to track stock market on daily or monthly basis and fluctuations make your heart beat faster then go for Balanced Mutual Funds(Open ended with growth option).
  • If you can bear the fluctuations and ready to take some risks go for Equity Mutual Funds
  • If you want to save taxes as well while investing in Mutual Funds go for ELSS.
Note: Prefer Open Ended Mutual Funds with Growth Options only. Choose dividend Mutual Funds when you need regular returns from Mutual Funds.

If your risk appetite is still little higher than that and want to make your hands dirty with manual selections of stocks, go ahead with following steps in mind. These steps are meant for long term investment horizon.

  • Start with small amount. Limit 5-10% of your annual income in first year.
  • Purchase only quality stocks companies which you know and their annual turnover is respectable.(Nifty 100 or BSE S&P 200)
  • Search for unpopular large companies, there may be some companies which may be part of S&P 100 or 200 but not so popular in masses due to their business model, such companies can be bought at bargain.
  • Maximum price to be paid for any share should not reach more than 25 times their P/E.
  • Search for the stocks which are at low due to some temporary issues. Like- Flood or some natural disaster affecting their business.
  • Never buy a share which has been subjected to some lawsuits.
  • Keep buying at regular interval. This will average your buying price and help in good return in long term.
  • A great company may not be a great investment if you buy it overprices.(refer to P/E rule)
  • Don't put all of your eggs in a basket. Means diversify your investment but not too much. Purchase different sectors.
  • If you get chance to put your money in foreign market don't put more than 1/3 of your portfolio.
  • Don't rely much on market forecasts and market experts.
  • Never sell all of your stocks no matter how much market is overvalued.
  • When you think market is overvalued sell the stocks and keep the money in bonds and repurchase when you feel market is undervalued.
  • Never buy after a substantial rise or fall of market.
  • Make sure company has paid regular dividend from last 5 to 10 years.
  • Don't try to beat the market, try to make return close to market returns.
  • Index funds does the best job as they don't try to beat the market.
  • See cashflow statement of company and see if their income from operations is increasing through out the years.
  • Look for the debt on company it should be less than 50% of their capital. (D/E should be less than 0.5)
  • Start your investment from ETFs and Mutual Funds to understand market sentiments.
  • Make a virtual portfolio from sites like and add your favourite stocks in it and match market return.
  • Don't frequently buy and sell as brokerage charges and taxes can make your actual gain less.
  • Take benefits of 1 year lock advantage for equity as capital gain is free from taxes. 

Hope this helps. Keep investing.

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