Myths about investing in stocks

Myths about investing in stocks

Some people always feel that stock investing is more like gambling. But that is far from reality. Stock investing involves a lot of research, understanding of the market and foresight. It may seem seem like a gamble but it is a highly calculated and a calibrated one.

There are many other such misconceptions about the myths about investing in stocks that have stuck around in the minds of public for years. This article will trawl through the list of stock market myths and bust them so that your investment decisions are not swayed by misinformation. Here is a quick and helpful guide to help you know how to start investing in stocks.

Myth 1. Investing in the stock market needs a lot of money

Most people are of the opinion that investing in the stock market is only for the experienced and the rich. However, contrary to popular belief, stock investing can be done with as low as Rs 10. Technically NSE, BSE, etc. do not have any minimum amount for investing.
To know how to start investing in stocks, you don’t need to be wealthy. You can start investing money in stocks by putting into equity investments with a small capital and then reinvesting your earnings. However, it is important that you ensure you are investing in good businesses at a fair price along with a long-term perspective.

Myth 2. Stock investment helps you make money quickly

Reality: Though many people earn via intraday trading, there is no such thing as ‘overnight money’ schemes in the stock market. Equity investments are considered to be ideal for long-term investors. Therefore, keeping your expectations realistic is more important while trading in stock market.

Myth 3. Investing in stocks is all about timing the market

Reality: Timing the market is not an ideal way of investing. Trying to catch crests and troughs of a stock cycle can be quite challenging and, more often than not, you would end up losing more money out of sheer fear.
By timing the market, you are letting fear and greed rule your judgement, which is contrary to the basic stock investing principle.
Instead of trying to “time” the market, it makes more sense to focus on your investment goals. Being invested is more important.

Myth 4. It’s always good to buy ‘hot stocks’

Reality: This is not always true. Hot stocks may not generate enormous gains over the long run. It’s better to analyse the stocks based on the company’s fundamentals and intrinsic share value.
Stocks that are undervalued or value stocks have often outperformed popular growth stocks at many times.

Myth 5. ‘Buy low and sell high’ is always the right strategy for investing in stocks

Reality: Beginners to equity investment think that ‘buy low and sell high’ is the key to investing. But, price alone is not the factor for stock selection. It is important to study the businesses that you are investing in. Having busted stock market myths about investing, you can now know when to buy and when to sell, which is a critical factor that is more important than the price.

To sum up, avoid being influenced by stock market myths about investing and invest rationally keeping in mind your individual goals and risk tolerance. You can also consult professionals and seek their advice to optimize your investment decisions. If you are a novice in the world of stock market investing, it is a good idea to consult expert opinion and advice through a financial expert who can guide you through the process and familiarize you with trading.


Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.


Types of stocks

Everyone wants to create wealth. Stock market is a great place for long term wealth creation .Though stocks are risky, they can offer lucrative returns if decisions of investments are made with reasonable care. Understanding the basics of stock investments such as what are the different types of stocks, how to choose them, etc. can help you manage risk and succeed in stock market investing.Stocks are classified on various criteria. Let’s take a look at some common types of stocks along with tips to choose them.Based on ownership rights✓ Common stocks: Such stocks come with voting rights. However, common stocks are the lowest in priority in the event of company’s liquidation. Therefore, common stockholders do not get their money back until the preferred stockholders and bondholders get their respective shares. However, common stocks usually perform better than preferred stocks and bonds and so there is a possible upswing in the longer run.✓ Preferred stocks: These stocks pay regular dividends to the investors, which is either fixed or set against a benchmark performance. They are also less volatile than common stocks. Tips to choose: Common stocks are easier to trade on the stock exchange. Also, preferred stocks are offered under private placement where retail investors can hardly participate. Since large corporates buy preferred stocks, it is a common way to raise money. Some companies also offer convertible preferred stocks that can be exchanged with common stocks after a point of time. So, even though preferred stock is equity, it works a lot like bonds and can behave like debt from a tax angle.Based on market capitalization✓ Large-cap stocks: These are stocks of well-established companies with a large market capitalization. These companies usually have a valuation of Rs 10,000 crore or more. The large cap or blue-chip stocks, as they are commonly known as, are of large financially sound companies with a steady growth rate. However, they generally do not provide tremendous growth in a short span of time. They usually provide steady growth in the longer run. Some common examples of blue-chip stocks in India are SBI, Bharti Airtel, HDFC Bank, TCS, Infosys, Wipro, ONGC, ITC, Maruti Suzuki, Kotak Mahindra Bank, etc.✓ Mid-cap stocks: These are stocks of companies that have a market capitalization of Rs 500 crore to 10,000 crore. These stocks are however more volatile than large cap stocks and are preferred by intraday traders than long-term investors. Some examples of mid-cap stocks would be Bata India, Colgate-Palmolive, Emami Ltd., Berger Paints, Canara Bank, Godrej Industries, etc.✓ Small-cap stocks: These are stocks of companies that have a market capitalization of less than Rs 500 crore. These are highly risky in nature. Foretelling the fortunes of these stocks is notoriously difficult as the price movements can be volatile. These stocks are usually preferred by intraday traders who use technical analysis to pick the right stocks. They do so in the hope of making a quick buck over a single day. Some popular small cap stocks are Pfizer Ltd., Spice Jet Limited, L&T Technology Services Ltd., Fortis Healthcare, etc. Tips to choose: You need to know which stocks would work best for you. If you are looking for a steady portfolio which does not need to be actively managed, then you can opt for large-cap stocks. If you want high growth along with some stability in the portfolio, then mid-cap stocks are a good buy. And if you are an aggressive investor with sufficient market knowledge, small-cap funds would be a good bet, provided you have done the basic groundwork on the company and the management before investing! Based on price trends✓ Defensive stocks: Such company stocks are unaffected by market conditions. For example, stocks of pharma companies, insurance, tobacco, food and beverage companies etc. perform moderately in all market scenarios.✓ Cyclical stocks: Such stocks get affected more by market cycles and trends and have a particular cycle of operation. For example, stocks of travel companies, automobiles, airlines and hotels etc. are cyclical in nature. Tips to choose: Defensive stocks are preferable during tough market conditions and cyclical stocks can be an option during a booming market. Cyclical stocks are more market sensitive and choosing them at the right time of the cycle is more important.Based on investing style✓ Value stocks: These stocks have some potential but are undervalued compared to their peers. The stock could be underpriced due to multiple reasons like change in management, cyclical, financial distress, investor sentiments, etc. ✓ Growth stocks: Such stocks are in the midst of a growth phase. Price of such shares rise faster as companies ideally reinvest their earnings instead of distributing dividend. ✓ Income stocks: Usually these are the stocks of stable companies who distribute higher dividend and thus provide some stability to the investors. Tips to choose: ‘Buy low, sell high’ is the common philosophy followed for value stock. Growth stocks are best for aggressive investors who are primarily looking for capital gains. Income stocks are relatively less risky can be a secondary source of income. However, these stock prices may witness a huge fall during market downturn. To conclude, it’s important to choose the stock that fits your investment profile. There are lots of factors that need to be considered like market conditions, company fundamentals, tax implications, volatility, etc. that goes into the process of stock picking. Knowing the basics can help you make the right and informed choice. You can also seek help of financial advisers with regard to strategies, individual stock selection and key investment decisions.   Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.

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Why debt investments matter?

While planning an investment portfolio, people often confuse investments with equity. Yes, equity is an important part of an investment corpus, but so are debt market instruments. Just like a well-balanced diet is important for a healthy lifestyle, an investment portfolio needs to have a proper mix of both equity and debt market instruments. With the fall in interest rate over the last couple of years, fixed income or debt investments have become significantly less attractive. However, a smart strategy to creating a healthy investment portfolio is to have adequate proportions of both equity and debt investments depending on your risk profile. Regardless of the economic environment, there are some inherent benefits of debt investments that makes them an integral part of an investment basket. Key benefits of fixed income investments✓ Assured Income: Even as you invest for wealth creation over the long run, it is also important to create a regular source of income. Most bonds pay interest (at fixed rate) on a regular basis which is either yearly or half yearly. You can however opt to reinvest the same if you do not need a steady flow of income. The Indian bond market offers a variety of products to suit various needs. ✓ Stability: Every investment carries some degree of inherent risk. Fixed income investments are less risky when compared to equity investments as they provide capital protection. Since fixed income investments are a debt investment, they work on the basic principle of repaying the amount of money that was originally invested at the time of maturity. This means there is little fear of losing the original capital. Thus, fixed income investments provide a sense of stability to the overall portfolio. ✓ Liquidity: There are various types of debt investments that provide high liquidity. You can choose debt instruments based on your liquidity requirement. For example, liquid funds and short-term debt funds can be considered as short-term investment products. ✓ Indexation benefit: Unlike equity investments, some debt investments provide indexation benefit to its investors if the period of holding is three years or more. This provides significant tax relief from the capital gains. ✓ Diversification: Usually, prices of equity and debt investments move in different direction. Due to the inverse relationship, fixed income investments can be a valuable addition to your portfolio and provide a hedge against equity. Government bonds, private bonds, fixed maturity plans and bank deposits etc. are some of the popular fixed-income investment choices available to diversify your portfolio. It is also important to consider the credit quality, interest rate volatility and economic cycles in a debt market. Here we look into why debt investments matter.Introduction to debt market The Indian debt market is one of the largest in Asia. In a developing country like India, debt market is an important source for raising finance. ✓ The Indian government raises money for all their developmental activities through the debt market. In order to finance various developmental activities, the government (both central and state) issue bonds to borrow money. Government securities are issued by the Reserve Bank of India on behalf of the government. ✓ Debt market can also help control inflation. A reduction in the interest rate for government securities increases liquidity in the market as investors reduce buying bonds. The opposite holds true as well. ✓ An efficient debt market helps in effective mobilization and allocation of resources in the economy. Investment in debt market mobilizes the idle household resources which would otherwise not be a part of the money in circulation. With a rise in interest rates, the idle money can be put to use, thereby increasing the government’s corpus. Thus, effective mobilization and resource allocation leads to economic efficiency and growth. To sum up, there are various benefits of debt investments. For one, debt market offers various investment opportunities. Debt investments play a vital role in building a well-balanced portfolio. Irrespective of economic conditions and market trends, it is important to have an ideal mix of stocks and debt investments based on your investment objective and risk profile.     Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.

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The above mentioned are a few things that one must know before indulging in commodity trading in India. As a beginner or seasoned investor, you can contact IndiaNivesh for any assistance relating to the Indian commodity market. Our experts and professionals can help you in finding the best commodity to trade in India according to your risk-taking ability and financial goals. Our aim is to exceed the client’s expectation in all endeavours and we will be glad to serve you.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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  • Systematic Withdrawal Plans – How to use SWP?

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Through SWP, investors get the average NAV of the MF over a long duration of time. Hence, it protects them from market fluctuations and ensures that investors do not become dependent on any particular NAV.4. Tax efficiencies From a tax perspective, each withdrawal under SWP is treated the same as equity or debt mutual funds. As the tax is applied only on the amount redeemed, SWP becomes a more tax-efficient alternative as compared to Fixed Deposits or lump sum withdrawals. They are preferred to Dividend Plans too for the same reason. Dividend payouts attract DDT (Dividend Distribution Tax) which is deducted by the AMC before the payout. SWP allows  optimising the tax on capital gains by holding the investments for a longer tenure and splitting the income over multiple time periods. How to use SWPs effectively? All investors can benefit from SWP in Mutual Funds. Here are some examples in which you can include them effectively in your financial planning- Retirement Planning SWP is a great strategy to fund financial needs post-retirement. This facility is especially handy for retirees who do not have a pension or other such regular source of income. Supplement salary income Salaried individuals can use SWP as a second source of income. It can help them fund specific financial goals such as children’s education, purchase of consumer goods, paying off loans, etc. Freelancers The biggest challenge faced by freelancers or self-employed professionals is lack of a steady or fixed income. There may be months where they would be minting money but there could be some dry spells as well. In such cases SWPs help to bring stability to one’s financial life. Nearing your financial goals Many investors use SWP in an extremely smart manner, especially when the markets are doing well. They invest in an equity mutual fund as they have the potential to generate higher returns. Once they reach their desired corpus, they can opt for an SWP. Through this facility, they move the funds from the equity investments to a relatively safer/ non-volatile option such as Bank Deposits, etc.   Final Words Systematic Withdrawal Plans help to cultivate a sense of financial discipline. It can be effectively used as a means to fund your monthly expenses or finance your (or your parent’s) retired life. Not only does it offer regular income but also ensures a controlled and budgeted approach to spending. However, you should try to withdraw only the interest part and keep the capital amount intact. In case you are unable to decide how much is too much, it is best to seek the help of an expert like IndiaNivesh. The team at IndiaNivesh can help you choose the right Mutual Fund scheme and the correct SWP amount basis your financial needs and investment tenure. They also offer a wide range of financial solutions related to broking and distribution, institutional equities, strategic investments, investment banking and wealth management. You can read all about them on "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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  • Commodity Investment – Reasons to Invest in Commodity Market

    The world of investments has a vast number of financial instruments such as shares, stocks, bonds and many more. Commodities, too, are one such investment option available for investment. Even though the commodity market has grown substantially in the last few years, the participation of retail investors in commodities is still limited. However, the commodity market has huge potential and making the right investments in commodities can help improve the performance of your portfolio. What are commodities? Commodities are tangible goods that are either naturally occurring or can be agriculturally grown.  Commodities are consumed directly or used as raw materials for manufacturing finished goods meant for public consumption. All commodities can be classified under either of the two categories- Soft commodities- Those, that are grown and cannot be stored for an extended period. Examples of soft commodities include agricultural products such as grains, tea, coffee, and livestock. Hard commodities- Those, that are obtained through mining and extraction. Example of hard commodities includes oil, metals and natural gas. Why should you invest in the commodities market? Commodities play an important role in the development process and hence are building blocks of every economy. Commodity investments can help you diversify your portfolio into a different asset class apart from shares and bonds and enhance the overall returns of your investments. For many of you, the general perception is that the commodity market is complex and hence not something that everyone can dabble into. However, commodity investments can fetch you handsome returns.  Here are the top three reasons to invest in commodity markets for all types of investors-1. To diversify your portfolio  One of the key factors that determine the success of your financial planning is diversification. Diversification with regards to investment portfolio means investing in various assets that are not correlated to each other of your portfolio in different asset classes. Most of you would be diversifying your portfolio in five major asset classes which include cash, shares, fixed income securities, real estate, and gold. In times of increased volatility in the markets, you are either holding on to cash or investing in gold. Gold is considered the safest haven for investment in turbulent times and Indians tend to invest in gold because it is considered as a symbol of wealth and has ornamental value. However, in reality, the gold in your portfolio is your investment in commodity and just like all the other commodities the returns from it are independent of the returns generated by stocks and bonds. Just like gold, there are other commodity investments whose returns are not correlated to equities and bond markets. The price of any commodity investment is a function of demand and supply and by doing proper research and analysis you can make profits from commodity market investments.2. To provide a hedge against inflation Inflation is the general rise in the price of goods and services over time. For any investment to be fruitful, it is important that the returns generated beat the rate of inflation.  Higher inflation effectively erodes the real returns generated by your investments in stocks and fixed income securities. However, in the case of commodities, higher inflation relates to the higher price of commodities. So, unlike other investments, your commodity investments will result in a strong performance when inflation is high. Given the current situation when inflation is constantly on the rise, investing in commodities will provide a hedge against inflation.3. To improve potential returns The prices of individual commodities can fluctuate significantly due to several factors such as demand and supply, the impact of natural calamities, exchange rates and the economic health of the nation.  The rise in infrastructure projects in a developing country like ours and also globally has had a positive impact on commodity prices. As the commodity market is still an untapped arena, many of them are trading at a lower price than their actual potential. Proper research and effective implementation of investment strategy in commodities can help investors improve the overall returns on their portfolio. What are the various options to invest in commodities? The commodities market is a very deep market and investors have many investment vehicles to access it.  Let us look at the various options available for investors to buy and sell commodities1) Investing in the physical form Commodities such as gold, silver, etc., are bought by investors in physical form.  However, not all commodities can be bought in physical form as it has its drawbacks of storage and spoilage. Even in the case of precious metals security and insurance increase the cost of your investment. Moreover, most of the time you want to invest in a commodity, not for end-use but to make profits if you anticipate that the price will increase. So, buying a commodity in physical form, except for precious metals, is generally not recommended for retail investors.2) Investment through commodity futures One of the most common ways to trade in commodities is through a commodities futures contract. It is a standardised agreement to buy or sell fixed quantities of the underlying commodity at a predetermined price on a specific date as mentioned in the contract. Also, commodity trades happen electronically through commodity exchanges where investing real-time commodity is possible.  Multi Commodity Exchange of India (MCX), National Commodity and Derivatives Exchange (NCDEX) are two of the many commodity exchanges present in the country which help investors trade in commodities. All the commodity exchanges come under the regulation of the Forward Markets Commission (FMC). 3) Commodity ETFs Commodity ETFs are another popular investment option available for retail investors to diversify their holdings in commodities. Commodity ETFs invest in a single commodity and physically hold and store it, invest in a commodity futures contract or invest in a commodity index that tracks the performance of multiple commodities. Investors can invest in commodity ETFs electronically in their Demat account. 4) Commodity Stocks Investors who are not comfortable with investing in commodity futures or ETFs can diversify their portfolio in commodities is by investing in commodity stocks. Commodity stocks are stocks of those companies which are directly or indirectly related in the manufacturing process of the commodity and hence have a positive correlation with the commodity.  For example, if you feel that the steel prices are going to increase, then you can invest in the stocks of various steel companies listed on the exchange. 5) Mutual funds One of the biggest reasons for an investor to shy away from commodity investment is that commodity investments require a lot of time, knowledge and expertise to make the right investment choices. However, now SEBI has permitted mutual funds to invest in the commodities market through the exchange-traded commodities derivatives (ETCD) route.  Thus, retail investors can now participate in commodity markets in a structured manner through professionally managed mutual funds. Takeaway Commodities are a broad and diversified asset class that offers a great investment opportunity to investors. Given the high inflationary pressure and volatility in the markets, dedicating a small portion of your portfolio to commodities will help enhance the overall performance of your investments. Investing in commodities may look intimidating and you may feel a little hesitant to explore your options, but correct guidance from an experienced financial advisor can help you understand the nuances of commodity markets and make the right investment decisions as per your investment needs. Financial advisors at IndiaNivesh possess the requisite expertise and experience to help and guide you with investments in commodities markets.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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