When it comes to investing, the options available are diverse. This is actually a great thing because the every individual is different. They are diverse in their risk taking appetite, in their financial end goals, and primarily vary in the investing abilities. A person who loves taking risks might be tempted towards equities and shares, while someone who loves playing it safe would be inclined towards a mutual fund or bond.
Let’s talk about some financial instruments that you usually come across.
- Mutual Funds: This is a type of investment where money is pooled together from investors to invest in different schemes. These are operated by money managers, who could be an individual or a firm. They are professionals who diversify your investments and try to get maximum gains in the speculated period. This is a safer bet for people who feel it is risky to trade on their own.
- Bonds: This is a fixed income instrument by which a corporate or the government lends money from investors at an agreed interest rate for a specific time period.
- Derivatives: A derivative is a contract between two or more parties whose value is derived from an underlying asset. It derives its price from fluctuations in the underlying asset.
- Equity Shares: This gives you an ownership of a company. Once you own shares of a company, you gain voting rights too.
Now that we know about the financial instruments, let’s step into the Indian share market.
How to invest in Indian Share Market?
The first step in your life as an investor, you need to open a Demat and trading account and link it with your bank account. Once you’re done with this, you need a broker who can buy and sell on your behalf. No individual is allowed to go to a stock exchange and buy shares, instead you need a broker.
My advice to you is, be familiar with stock exchanges and its functions. This stock exchange is regulated by SEBI ( Securities and Exchange Board of India ). The two major stock exchanges for Indian investors are BSE (Bombay Stock Exchange) and NSE (National Stock Exchange).
Now that you’re buckled up remember this, we as individuals have our own set of goals and targets to achieve. Be it buying a house or a car, going on an expensive tour around the world, for all these goals, we need a strong financial planning. Stock markets could give you great returns, provided you invest in the right companies and be patient.
How do we start?
- First of all, define your goals.
- Invest regularly
- Understand and learn more about financial assets.
- Choose your assets carefully
- Finally, learn more about your assets (do this every few months)
Types of stocks in equity markets
When you buy a share, you either become a common shareholder or a preferred shareholder.
Common Shareholder: Being a common shareholder, you are entitled to vote, and are eligible to receive dividends. In case of bankruptcy, you will get a share of the proceeds of the liquidation after preferred shareholders and the creditors of the company.
Preferred Shareholders: Being a preferred shareholder, you won’t have any rights to vote during a shareholder meeting, but you will be the ahead in line when receiving dividends and liquidation proceeds.
Based market capitalization, you could invest in a large cap, mid cap or a small cap stock.
- Large Cap Stocks: Large cap stocks, also known as blue chip stocks are that of well established brands. In India, companies like Wipro, TCS and Infosys are examples of Large Cap Stocks. These investments are less risky as they have an established record for good performance and a stable competent management.
- Mid Cap Stocks: These are stocks of mid-size companies that are currently growing quite fast. The company is not as experienced as a large cap, but it is performing well enough to be on the radar of risk taking investors. These companies have the potential to grow very fast in the future. The examples of mid cap stocks in India are Vinnati Organics, Cera Sanitary Wear, etc.
- Small Cap Stocks: These are stocks of small companies and hold a high risk factor. These companies may have debuted on the stock markets recently and are yet to prove their mettle. They are extremely risky investments as they can fold up anytime soon. On the brighter side, these companies give some of the best returns and give great dividends. Many people have become millionaires on the back of investing in small cap companies.
There’s one more important piece of advice that we would like to give you. Never invest based on a rumor or word of mouth. Always do your research before investing. You don’t want to regret investing just because someone else asked you to.
Also, be aware of your risk taking appetite and invest accordingly. Learn throughout your investment journey and keep improving yourself every day.