The two biggest stock exchanges in India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Together, there are more than 6,000 companies listed on their platforms. With literally thousands of options in front of you, it can be tough to pick the right stocks for your portfolio. In other words, where do you even begin?
Here are some tips that can help you make the right investment decisions.
1) Familiar with a particular sector? Start there
It is always good to know how a company or a sector functions before you invest. For example, if you are in the healthcare industry, you might already have useful knowledge about how pharmaceutical companies function. You can utilise this knowledge for your investment gains.
Beyond that, you can start investing in companies with business models that are easy to understand. Even the great investment guru Warren Buffett says that he does not invest in companies and industries that he does not understand.
2) Check the financial health
Go through the financial records of the company to find out its financial health. Take a look at the company’s track record regarding revenues and profits. There are three important financial statements you should read and understand before investing in a company. They are:
These three statements paint a financial portrait of the company. By reading these statements, you can get an idea if a company is profitable or not. And while the profitability of the company is important, it is also necessary to see what the debt situation is. It may not be a good sign if a company has large amounts of debt when compared to its competitors.
3) What is the stake of promoters?
Promoters are individuals or organisations who are generally the biggest shareholders in a company. In many cases, these promoters have key executive roles in the company. That’s why keeping tabs on their investment holdings can offer clues regarding the future prospects of a company. So when promoters increase their shares, it is taken as a good sign for the company.
4) Looking for a regular income: dividends are your answer
Most people invest in the stock market for two reasons: steady income at the present or high returns in the future. If you are interested in a regular income, then it is best to invest in stocks that offer dividends. Blue chip companies that have reached the maturity stage of the growth cycle tend to offer good dividends to its investors. By investing in such companies, you can earn steady returns to finance your current needs.
5) Long-term investments
The stock market is an ideal investment avenue if you want to invest for the long term. Warren Buffett once said: “If you aren’t willing to own a stock for ten years, don’t even think of owning it for ten minutes.” Look out for stocks that have high growth potential in the next five to 10 years.
For example, if a company reinvests its profits back into the business, it is an indication that the company has good growth potential. This way, the company positions itself for long-term growth and success in the market. By investing in such stocks for the long term, it is possible to create a big corpus for your future goals such as buying a house or retirement planning.
Buying stocks is a science as well as an art. With more experience in the stock market, you can become a better investor. But to reach that state, you need to put in time and effort to learn and understand the different aspects of the stock market.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
For an artist, a portfolio is a collection of his paintings. And for an investor, a portfolio is a collection of his investments. You may think that investing and painting have nothing in common. However, the ability to pick the right investments for your portfolio is an art in itself. Here are some things you should keep in mind so that you can create a profitable portfolio:1) Identify your investment goalsYou can create an investment portfolio by simply investing in a bunch of different investments. However, that may not be the ideal way to reach your financial goals. Don’t invest just for the sake of investing. It is important to have a list of goals you wish to achieve. And your portfolio should work towards helping you reach these financial goals. You need to ask yourself: a) When do you require money in the future? b) How much money do you need at the time?c) How much can you invest right now to achieve those goals?Identifying the capital amount that you can invest as well as your future goals is the first task of creating a portfolio. From this, you can identify which investment avenues are the best options for you. 2) DiversifyWhen you talk about investments, the first two options you hear are stocks and bonds. Sure, stocks and bonds are popular investment options but they are not the only options. For example, if you invest all your money in stocks, you can risk losing the entire amount in case of a market crash. And by not considering other avenues, you might miss out on the opportunity of getting better gains. Alternative assets like commodities, real estate and gold are viable options too. You need to spread your investments across different assets in order to minimise your losses and maximise your returns. 3) Create a portfolio strategyWhen you create a portfolio, it is necessary to have a sound portfolio strategy. There are two strategies commonly used by investors in the market:a) Active portfolio strategyb) Passive portfolio strategy If you have the financial means and the ability to digest the risk, the active portfolio strategy might be suitable for you. Otherwise, it is better to stick with the passive approach.4) Have a long-term focusDon’t make hasty investment decisions based on peer pressure or current market trends. Identify your investment goals and stick with your investments. This can steadily help you achieve your goals in the long term. But if your funds don’t perform as per your expectations, it may be necessary to reshuffle the portfolio. There is no point in investing your money in a fund that does not perform well. Your money can be better deployed in a fund that offers higher returns. In such a scenario, you can strategically rebalance your funds. 5) Maintain an optimum number of investmentsHow many investments should you have in the portfolio? Should it be five, 10 or more? To this question, there is no single correct answer. There is no perfect magic number. Having very few funds can be risky. At the same time, too many funds can be pointless. Many investors assume: more the number of funds, better the diversification. This is not always true. In fact, after a certain point, there can be an overlap in funds. However, experts recommend not more than ten funds for optimum diversification. To sum upIt is good to maximise the returns of an investment but better to maximise the returns of the entire portfolio. Keep the above points in mind when creating your portfolio to achieve financial success. Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
Debt: the word itself conjures up the image of a moneylender standing on the doorstep waiting for his money. However, debt is not always bad. You may have heard of people ‘being in debt’ but what about ‘investing in debt’? When you make a debt investment, you loan the money to a corporate or the government. In return, you receive returns in the form of interest. If you are interested in tax-efficient steady returns and safety of principal, then debt funds are ideal for you.Here are five different types of funds that you can include in your portfolio: 1) BondsBonds are debt securities issued by government entities and corporate houses. These entities raise money for financial purposes, which include funding investments and enhanced cash flow. When you purchase bonds as investment, you receive a regular income through interest payments. At the end of the maturity period, you receive the original investment made. There are different types of bonds such as government bonds, corporate bonds, high-yield bonds, international bonds and so on. 2) Public provident fundThe Public Provident Fund, or the PPF, has been a popular debt-oriented investment for for the past many decades. This scheme is backed by the government of India and offers a high degree of protection on the principal as well as interest. As an investor, you are guaranteed a fixed return each year. The current rate of interest on PPF is fixed at 7.6% per annum . PPF is a 15-year scheme. At the time of maturity, you have the option to extend the plan indefinitely in blocks of five years. The investments you make under PPF are eligible for a tax deduction of Rs 1.5 lakh under Section 80C of the Income Tax Act. In addition, the interest you earn is not taxable. 3) National Saving CertificateNational Saving Certificate (NSC) is a savings bond offered by the Indian government. It is one of the safest investment avenues in the country. It is available at all post offices and investors can invest for up to 10 years in this scheme. Currently, the interest rate on NSC investments is 7.8% per annum*. It is popularly used as a tax-saving instrument by government employees, salaried individuals and businessmen. Further benefits include:a) Tax deductions are applicable under Section 80C of the IT Act. b) No upper limit on how much you can investc) You can get loans from banks by offering certificates as collateral 4) Gilt fundsGilt funds are mutual funds that allow you to invest in government bonds and securities. These funds carry zero default risk and they are considered to be very safe. These funds invest in debt that is of low risk and high quality. And while the returns can be moderate, the invested capital is safeguarded against risk. That’s why these funds are suitable for beginners or those who are risk averse. 5) Debt mutual fundsDebt mutual funds are different from gilt funds as they invest in a mix of securities such as corporate bonds, money market instruments, treasury bills and government securities. Compared to gilt funds, the risk is higher but they offer high returns too. If you are interested in earning a steady income during uncertain interest rate movements, you can invest in fixed maturity plans (FMPs). These are close ended debt funds with a fixed maturity date. ConclusionMost people think of equities when it comes to investments. However, investments in debt can be a great way to balance your portfolio and to earn steady returns. Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.*https://www.indiapost.gov.in/Financial/Pages/Content/NSC.aspx
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