Stock market is not a gamble, it is a business. However, we make it a gamble by investing without knowledge. Market volatility can be frustrating for a new investor. For the first time investors who invest in stock market or in equity mutual fund should always refer one quote “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes,” – Warren Buffett. Ideally, one must take help from expert fund manager to manage your funds in the stock market. Mutual funds as an expert collect money from investors and invest in stocks.
In mutual funds, first time investors should look at Systematic Investment Plans (SIPs) to build long-term wealth. SIPs allow an investor to buy units on a given date each month. One can start with a minimum amount of Rs 500. The biggest advantage of a SIP is that the investor doesn’t have to time the market. Investing every month ensures that one is invested during the highs and the lows. Incase of volatility in the market it will be in your favour if you go with the SIP, More units are purchased when a scheme’s net asset value (NAV) is low and fewer units are bought when the NAV is high and in the longer time frame it will average out the cost and will give you more benefits in terms of returns.
Here’s some advice for first time investors
Start investing with an Idea: Before you invest your first penny into the stock market or in Mutual funds ask yourself, “Why am I investing, and what do I want to achieve?” Having an idea is the most important step in the process, and it will help you achieve your goals. For example, if your goal is to save Rs 50,00,000 in 10 years, start with the end in mind and figure out how much you will need to invest monthly to reach your goal.
Portfolio Diversification: Investing is about more than just the stock market. Trying to get rich quick by putting all your money into a few hot stocks will almost certainly fail in the long run. The path to long-term wealth creation is building a diversified portfolio of stocks, bonds and a range of other asset classes.
Define your Financial Goal: Before investing, it is always advisable to know, for whom I am investing, all your investment should be aligned with your specific financial goals, it may be for your retirement, child education, home improvement etc. Once goals are determined, one can project how much-expected growth they need to achieve these goals. That, along with risk tolerance, will drive asset allocation and exposure to parts of the stock market.
Persistence with your investment: Don’t expect magnificent results from day 1. Initially, you may also lose some money. Combine investing with sound money management skills. Invest regularly. In any form of investing, discipline and regularity are the most important determinants of success. Warren Buffett put it well, “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”
Start Investing Early: The earlier you start, the easier it is to build wealth, thanks to the power of compounding. You’ve probably heard this a million times but it’s important that you truly believe in this statement, to reach the inflation-adjusted corpus you need to start early for your investment, you will end up far richer if you begin investing early. It is due to compound interest and the outcome differentials are staggering.
The essence of this column is to motivate my readers to initiate investment. Mutual funds through their equity and debt oriented products have been providing steady returns in the last 3 decades. They provide a bridge between those who have funds to invest and expertise needed to invest these funds. So if you have stayed away from investing in Mutual Funds for any reason, make a small beginning today and experience this unique option.
