Pre-requisite for investing
Invest only if you have spare funds: think of Investment only if you have enough spare funds which you are not planning to use in the near future viz. 3-4 years, such funds are ideal for investment. The logic behind this is that your investments need time to reap benefits. If the source of your investments is from your basic needs then such investments are prone to be liquidized much earlier.
You need funds which you are not looking to use in the long term. Only then those funds can be converted into good investments.
Investing in shares and Indian stock market are no different. Your investments in shares and Indian stock market need enough time so that you can reap maximum appreciation on your investment.
Study and research
Before you choose a stock to invest in, do a thorough study and research about it. Here the study and research imply understanding the kind of business the concerned company is doing, its history, its past performances, its capital structure, and key metrics.Key metrics here means the basic principles to understand how the company is doing which includes its revenue and cost structure, its business model, cash flow prediction, and dividend policy.For example companies with stable and higher cash flow are considered to be the best for investments.
Where the funds are utilized to its optimum usually such companies grow at a higher pace and so does its share value.Another example can be of the supplier base. Companies with great supplier base both local and international tend to be less volatile with demand and supply mechanisms.
Multiple options
It is always advisable to have a portfolio of investments.
Investing in diversified stocks helps you to ease out the risk burden. Your portfolio should not consist of one single or only a few stocks and shares. In a well-diversified portfolio, the risk is negated with rewards. It is a subjective thing to comprise a portfolio, it depends on the risk appetite of an individual. People who are risk averse normally go for blue chips and other such similar stocks where the risk is less and so is the premium.
On the other hand, there are people that like to play and leverage out with high-risk securities backup with some blue chip stocks in their portfolio to negate and mitigate any risk.
Way of investment
For a beginner, it is wise to invest in small amounts at regular intervals. Investing large amounts at one stretch may not yield that level of return as you wish for and is also very risky. Invest at a slow pace and look out for good avenues for investment. In that way, you will be wary of market fall and rise. When the market is high you can wait for it to go low so that you have funds to invest.
One of the most important things for an investor is patience. Impatience may lead to a bad decision which may hurt your earnings.
Don’t panic in situations where the market has gone down or when a good opportunity has been forgone. The market is never bullish or bearish it is ever changing and patience holds the key. Most of the time it's just the game of patience which gives great rewards.
