STOCK MARKET TRADING

For some people it takes weeks and months and even years to decide whether to enter into

Stock market or not because of following reasons.

i) The stock market is considered to be only for brokers and highly experienced

professional so common people stays away from it.

ii) Still most of the Indians consider the Stock market is risky and money loser

business/job.

iii) Lack of awareness due to absence of advertisement.

iv) Lack of training and guidance.

v) The last but not least that people think that Stock market requires lot of capital to

invest or to trade.

Likewise there are lot of rumours which kept most of the people away from the Stock market.

But the truth is that like any other business/job, the Stock market also requires knowledge

and experience. As every field requires knowledge and experience to get success likewise

Stock market also required knowledge to earn money.

In our various learning sections, we have explained all that requires to be a trader and

investor so that any person can earn live hood in the Stock market.

WHY PEOPLE FAIL IN STOCK MARKET

Lot of people enter Stock market to earn fast money and to do day trading based on tips.

This will not work and people will lose their money. If you are looking to make fast money

based on any tips then Stock market is not for you at all if you want to try then make up your

mind to lose your hard earned money. Stock market is for those who want to learn and then

earn. Day trading required months and even years of experience to start earning money.

Day trading is risky for new comers.

What is stock and stock Market?

WHAT IS STOCK

At the board level there are 3 types of companies -

1. Proprietor ship - company has only one owner

2. Private limited company - company having board of directors (multiple owners)

3. Public limited - This type of companies ownership is disturbed to all public in the form

of stocks and such companies will be listed on stock exchanges for public to buy the

stocks.

The public limited companies have stocks. A person buying single stock of a company holds

an ownership in that Company. For example - If you buy a stock of any company then you

are the owner of that company. The ownership depends on the number of stocks you hold or

the percentage of stocks you hold. A founder, chairman or board of directors, institutional

investors, hold majority of the stocks of the Company so they are considered as major stake

holders.

WHAT IS STOCK MARKET

The general term ‘market’ is the place where buying and selling takes place likewise Stock

market is the place where the buying and selling of Stocks take place.

Note - Now a days due to revolution of internet and computer the buying and selling of

Stocks can be done from anywhere in the world with the help of computer and internet

connection.

In India we have two major exchanges where trading takes place -National stock exchange

(NSE) and Bombay Stock Exchange (BSE).

SOME FACTS ABOUT STOCK MARKET

i) Stock market can be considered as business or job, either part time or full time job.

ii) It is all about learning and experience.

iii) It requires consistency in learning and after spending few years in markets, this

profession can be taken as part time.

iv) Requires full dedication

v) Don’t misunderstand that Stock market will make you lakhpati or crorepati in one night.

WHAT STOCK MARKET IS NOT

i) Overnight rich scheme or business.

ii) It is not a magic or quick money maker.

iii) It is not for seasonal earning but once experienced can make it seasonal activity.

iv) It is not for them who totally want to depend on tips.

WHO IS INVESTOR

A person who invests money in company’s performance to get good returns from few

months to few years is called as Investor.

Investor buys stocks of the company after analysing the company and its business. This

process is called as fundamental analysis. The person then holds it for few years and sells it

after the stock prices moves up and provides good returns.

FACTS ABOUT INVESTING/INVESTOR

i) Investing doesn’t require you to be in front of the market throughout the day. At the

same time it is always advantageous to keep self-updated with market happenings.

ii) As the investing doesn’t require you to be in front of the system whole day, the

investing can be considered as part time job or part time business.

iii) Investing can be done from few months to couple of years.

iv) Please note that “Our Indian History” shows that investing in stock market for long

years have always provided excellent returns compared to any other investment

option. So people knowing this fact stay invested in stock market for long term and get

benefited. No any other investing method provides returns that can be matched with

stock market returns for long period.

FUNDAMENTAL RISK

If you invest in companies without analysis and knowledge then it is risky. If you buy stocks

of the company having strong fundamentals and stay invested for 2 to 5 years then definitely

it would provide excellent returns. It is risky to buy stocks of the company without studying

the company.

WHAT IS TRADING

The mean of trading is buying and selling and Stock trading means buying and selling of

Stocks.

WHO IS THE TRADER

i. Trader who buys and sells Stocks is called a Stock trader.

ii. Traders buy and sell Stocks without concern of company’s performance rather they

study daily stock prices and its movement and adding some technical analysis to it.

iii. Trader is not interested to know how well the company is doing as he buys and sells

the stock immediately once he get profits.

iv. Trader is basically opportunity finder - Opportunity can be of any good news or bad

news or any government declaration or any company’s announcement, any

opportunity that makes the movement in the Stock price interests traders and they take

respective positions and make profit.

v. Traders keep themselves updated all the time and hence the trading has considered

as full time business/job. They have to be in-front of the system all the time at least

during learning phase.

vi. Trader do very frequent buying and selling of Stocks on daily basis, weekly basis and

on monthly basis and look for very small profits.

TRADING RISKS

Trading involves very high risk and it can wipe out all the money/capital. So basically a

potential trader has to first learn and do paper trading practice and if you one succeeds in

paper trading then go for real trading with money.

Trading involves very high risk and hence provides high returns in small span of time.

PRECAUTION FOR TRADING

Trading requires lots of market knowledge and experience so we do not recommend trading

for new comers.

WHAT YOU WANT TO DO

It is always advisable to plan and then act. Decide based on your availabilities whether you

want to become investor, trader or both.

If you can spend entire day in front of the market and ready to take risk then trading can be

selected because trading involves big risk and can wipe out all your money. For new comers

it is required to spend 6 to 8 hours in front of market. So while trading, investing can also be

done because investing is not all day activity.

Investment - If you can’t provide more than 6 to 8 hours in a day then better you prefer

investing to start with and till you get feel of the market. So if you are working professional

and want to have part time job or side business then investing in Stocks would be preferred.

So selection of method to enter into Stock market is totally depends on you and your ability

to provide time and ready to take level of risk. Investing has low risk and trading has high

risk.

ONLINE TRADING

Online trading has brought the convenience of stock trading to the click of a button. In online

trading you do not have to call your Broker/Investment consultant to make any transaction

and you can make the transactions in real time. Now almost all the online trading platforms

even provide the facility of transferring money between your bank account and your Trading

account making stock trading a complete hassle free activity.

GET A PAN CARD

PAN or Permanent Account Number is a primary requirement for entering any financial

transactions in our country. It is unique 10 digit Alpha-Numeric number assigned to an

individual by the Tax Authorities for assessing their tax liabilities. PAN is however required

for opening a bank account, investing in mutual funds, filling Income Tax returns etc. Also

the first thing you will need to be able to invest in shares in India is a PAN card, so get it first.

GET A BROKER

You and I cannot directly go the stock exchange and buy or sell stocks/shares like we would

buy or sell any other thing. People are authorised to buy and sell on the markets and they

are called brokers. Brokers can be individuals or companies and even online agencies that

are registered and licensed by SEBI or Securities and Exchanges Board of India, who

regulates the share markets. Get a broker, they can be individuals you know and are

reliable, or you can approach various companies that are licensed to trade and deal in

securities in the markets. If you are comfortable with internet and online stuff, you can even

have online broking through companies like ICICI Direct, Sharekhan, Kotak Securities, and

IndiaBulls etc.

GET A DEMAT AND TRADING ACCOUNT

Once you have a broker, whether in form of a person, company or online, you will now need

a DEMAT and Trading account. DEMAT account will hold the stocks or shares in your name

and the same will reflect in your stock portfolio. You cannot hold shares in physical form or

store them physically. They have to in Dematerialized state or DEMAT state. A DEMAT

account does that for you. It will store the shares you buy from the markets through your

brokers in your account in your name. The selling will also be from here and it will reflect in

your DEMAT statements that you receive from time to time. You will never have a physical

share certificate in your hands; it will be reflected in your DEMAT Account Statement.

The buying and selling of shares you wish to have or want to sell will however require a

Trading account. Trading account will be like an intermediary who facilitates the buying and

selling. Usually your broker takes care of all this. Whether you approach an individual broker,

a broking firm or online agencies, the DEMAT and Trading accounts will be opened

simultaneously as it is one without the other is useless for investing in shares in India.

DEPOSITORY PARTICIPANT

There is also a Depositary Participant that you need to be aware of. There are two

depositories in India: NSDL and CDSL which stands for National Securities Depository

Limited and Central Depository Services Limited. These two have their agents in the form of

Depository Participants who will provide an account to store the shares you hold. It is not the

same as DEMAT and Trading account as in DEMAT it shows the number shares you hold

and the Trading reflects the buying and selling that has taken place in your account.

Depository Participants will hold those shares you bought and release the shares you sold.

However, it is usually taken care of by the broker who will also guide you through the

DEMAT, Trading account opening process as well as register with a Depository. But you

need to be aware of it none-the-less.

UIN (UNIQUE IDENTIFICATION NUMBER)

UIN or Unique Identification Number is required in case you trade for Rs. 1,00,000 or more

at a single time. If you plan to go BIG in share markets, UIN is needed. Otherwise, for

regular investors it is not required.

BUYING AND SELLING

For buying or selling shares, you need to inform your broker about which share in what

quantity you wish to buy at which price. For example if you wish to buy 10 shares of

Reliance Industries Ltd when it reaches a price of Rs. 885, you have to inform the same to

you broker; Share: Reliance Industries Ltd. Quantity: 10, Price: 885. In case of online broker

too, they usually have customer care numbers where you can place your order if you do not

have access to the internet at that point. When the share reaches that price, transaction will

be made on your behalf. Same is done in case of selling, for example Sell: Reliance

Industries Ltd, Quantity: 3, Price: 895. The sell order will be processed when the share

reaches that price. However the buy and sell orders remain valid only up to a certain time,

usually the same day or the next. Your broker will inform you of the same. If during that time

frame the buy or sell price is not reached, the order is cancelled and you need to place a

new order.

The buying and selling takes place in two exchanges: BSE and NSE namely Bombay Stock

Exchange and National Stock Exchange. These are the only two exchanges in India where

buying and selling of shares and commodities take place. You need to mention the

exchange to your broker too, as there is usually a slight difference in price of shares at the

two exchanges. However your broker can guide you here in case you do not understand

where to trade.

Don’t get carried away and avoid these mistakes: Now that you know how to get started with

your investment in shares, do not get carried away as stock markets can be tricky and it

won’t take time for you to lose money if you make a slight mistake in judgement or follow

stuff blindly.

INVESTMENT ADVICE

Investments can often create confusion and a lot of people do not get the financial jargon

like indexation or PE ratio or annualized yield or post tax income and so on which is perfectly

fine, not everyone is a CA or MBA in finance or a Management Guru. Learning to invest is

similar to learning swimming, you start with shallow waters, learn to float and survive and not

drown then go across the breath of the pool and then when you are confident you venture

into the deep waters. Not everyone can become an Olympic swimmer, but hey you can

certainly learn how not to drown and stay above the water.

Today you may have landed a decent job and have started to look forward to the

independence of having your own money and may already have gone through “where you

see yourself 5 years from now?” routine which is really great, but often I come across people

who have a very good take home income for quiet sometime but often fall short of cash

when there is a crunch or financial emergency or the ‘R’ word strikes the economy. While

there’s not much you can do in terms of financial crunches or layoffs, you can always be well

cushioned against the blow if you invest well. I am no investment or financial guru but I do

know how to deal with one’s own money and have learnt through personal experience,

interacting with financial and investment consultants and learnt from mistakes on how to

have a good financial support system in place. The most important thing here is to

understand that even a small income can be a good start to meet your investment targets in

the long run.

Through my personal experience over the years I have come across a lot of people,

especially early on in their careers, who have made plans for their lives and how they wish to

reach there and what next thing they will splurge, which gives a good vibe to me as it shows

the positivity in their thinking and an underlying ambition to go ahead and take life head on.

What pinches me is when there is a financial crunch; they often fall short of funds or do not

understand what to do. It makes them eventually turn to their parents, relatives or maybe

borrowing from friends or worst they opt for personal loans thinking loan will solve their

troubles without realizing that they are short on funds, and while loan will deal with the

situation for now, the interest on personal loans will further their misery and lot of them

appear clueless. Also, today there are lot of unconventional jobs in the market and not all

have the luxury of ‘cost to company’ benefits or various deductions being made on their

behalf like provident fund, gratuity etc., on which they can fall back on in their retirement. To

avoid such scenarios and have sound financial management, irrespective of your field of

work and nature of occupation; self-employed, employed, part-time or full-time, people

should start to invest however small the amount maybe.

GETTING STARTED WITH INVESTMENTS

The way to sound investments and developing a decent corpus is a constant learning

process. However the key is to understand not the jargon, but the basics of how money

works and what investment avenues are out there and which suit you and your

requirements.

COMMON INVESTMENT MISTAKES TO AVOID

1. Never ever invest in something you do not understand, just because your friend did it

and so you followed suit. Understand the product first and know if his/her needs are

same as yours, are you comfortable with the minimum investment required, the lock-in

periods etc. Always ask questions to the person offering you the investment option, be

it banks, agents, insurance companies and do not take their word for it, have some

written proof as many a time the representatives whom you would most likely speak to

may conceal some facts or just glorify the return on investment to you. You should not

be in for a rude shock when the time comes to get your returns.

2. Never invest in something you feel fishy or too good to be true, such as a scheme that

offers double or triple returns compared to any other investment available in the

market. Money does not grow on trees and one has to understand that if someone

promises to double your money in 2-3 months it is most likely a scam or the means will

not be as per the legal regulations of the country or money markets. Keep the greed in

check and do not fall for such traps; there are lot of people losing their hard earned

money in such schemes every minute.

3. Never invest by taking loans. If you come across a great legitimate investment scheme

but are short on cash, do not borrow money for investing. Invest with what you have

and what you are comfortable with. When you take loans you create a liability which

you have to repay at some point and in most cases it will have some sort of interest.

Now say you earn a return on investment at 15% p.a. and your interest on loan is @

10% p.a. so ultimately your effective return on such investment is only 5% p.a. and you

are losing out on the 10% return had you invested without taking a loan. Also in worst

case if your investment did not do well and your invested money loses value, you still

have the interest to pay and this could make your returns negative and do not forget,

you still have to repay the principal amount.

4. Do not venture into the share markets, based on tips from someone. Also do not invest

in shares until you understand the basics of what is what and how stuff works in the

markets. Investing in shares is not a wrong thing, but speculating could lead to

disasters. Always check the company’s track record and its earning potential among

other things.

5. Never put all your eggs in the same basket. This holds so true for investments. Just

like if the basket falls you most likely lose all your eggs, if the scheme or fund or

shares you invested in does not give good returns and all your money is in them, you

will lose a lot. Always diversify. Invest in various instruments and have a varied

portfolio which covers insurance, mutual funds, debt investments, some equity, gold,

tax saving options etc. This will guard you against scenarios where one of these

under-perform or give outright low or negative returns. In such case you can book the

losses and invest money in some other options where you are getting stable returns.

Once you are aware of how to avoid these common mistakes, you can then start to

contemplate your options of where to invest money and how much you can put aside every

month to invest.

WHAT ARE THE TYPICAL INVESTMENT PRODUCTS

When you are new to investments it is advisable to opt for secured investments over

speculative or fluctuating ones. Investment types can broadly be classified into two, Equity

and Debt.

Equity is the one which is volatile and dynamic, it may give more returns but will also come

with risks by which your invested money can go down in value. It involves trading in share

markets or mutual funds and commodities.

Debt is usually the one which is risk free and stable and has a fixed rate of returns. In such

investment you can be sure as to how much funds you will withdraw at the end of the tenure

but the returns may be low.

Under these two categories you get several products from Life insurance, health insurance,

pension schemes, Government bonds, Mutual funds, direct equity investments, bank FDs

etc. as your investment options. There will also be some products that aim to give you best

of both worlds through various balanced funds, which will but a part of your invested money

in equity and part of it in debt.

In our country, certain commodities are also hot favourite for investments; typically gold and

silver. Again these are market dependent and equity like as they fluctuate on a daily basis.

UNDERSTANDING VARIOUS INVESTMENT INSTRUMENTS

Most legitimate investment products will most likely get you good returns over a period of 5-7

years. The risks are limited to an extent in professionally managed investment instruments

as compared to investing in direct equity like trading in shares or commodities without having

enough knowledge and exposure. Typically when starting off it is advisable to invest through

professionally managed instruments or debt based schemes and gradually going towards

direct equity and other avenues.

Equity investments deal with the markets and the upswings and down swings of the markets,

directly affect your investment value. When young, it is the best time to start with some

exposure to equity as in worst case scenarios you will have age on your side to make good

any loss that you may incur due to the volatility of equity markets. However one should be

careful of not putting huge sums in this type of investment and hope for your money doubling

instantly. That could be catastrophic and very unpleasant. Taking the mutual fund route for

equity investments is a good option.

Mutual Funds are offered by lot of reputed companies who have been in the financial

business for decades and centuries. This investment type should be the option for a new

investor looking to get a pie of the equity and commodities market. Just like mutual funds

there is also Exchange Traded Funds (ETF) which invests in commodities like Gold etc.

These have dedicated fund managers to handle and manage your investments. They are

paid professionals whose job is to make sure your invested money is well allocated and

even in most volatile markets they will make sure the losses are kept to a minimum. You, as

an individual may not know when to exit or enter the market, which shares to buy etc. Mutual

Fund houses through their experience can handle such situations thus reducing your risks to

a good extent. If the markets perform miserably, your fund value is bound to go down but it

won’t be as bad if you had invested directly in the markets. However, do remember that

mutual funds are long term investments and importantly ‘mutual fund investments are

subject to market risks’. For more in-depth understanding of Mutual Funds you can refer

here.

Debt instruments are typically schemes like National savings certificate, Government bonds

etc. This investment type has low rate of returns when compared to equity schemes but will

give you assured returns, for you to be sure of getting an X amount at the end of the tenure.

Some of these will also carry some sort of tax benefits with it. Some of the Government

bonds will also have longer investment tenure as long as 7 to 9 years.

Other secured investment options are the traditional fixed deposits, recurring deposits,

Public provident funds etc. These all will also have a fixed assured rate of return. Balanced

funds as mentioned above will have a portion of debt and a portion of equity and try to

combine the best of both worlds. These make more sense if there is too much volatility in the

markets and you do not want to risk too much initially.

GET YOURSELF AN LIC POLICY

The first investment for anyone should be a life cover, and LIC seems to be a good enough

choice for simple no frills insurance plans. It is advisable to get a life cover ten times your

annual income. Usually getting a simple term plan is a good option as you can get more

sum-assured for lower premium amount paid. Though it does not have any monetary

returns, consider this as an investment for your loved ones, who may be affected in your

absence. For good returns there are various Unit linked Insurance plans or ULIPs and

endowment policies etc., which can also be opted for. But initially a term plan can get you

started, and the younger you start the lower your premium will be. This term plan should be

your primary life insurance and later on you can opt for top up insurance and other plans as

mentioned above for life cover plus return on investment. There are various reputed private

and public sector companies apart from LIC who offer good and competitive policies, but as I

said for starters LIC is a good choice. You can even avail a loan against policy from LIC.

GET A PUBLIC PROVIDENT FUND (PPF) ACCOUNT:

Irrespective of your company providing for EPF, you can and should opt for a PPF account.

The Government of India provides public provident fund which is sort of a savings cum tax

saving account having a lock in period of 15 years and can be held with the Indian Post

Office or any Nationalized Bank branches. ICICI is the only private sector bank in which you

can open a PPF account. The great thing about PPF account is that the amount you invest

in it is completely tax free and it gets a compounded interest of 8.70 % p.a. and this interest

is also tax free. Further, you can also avail loan from the PPF account from the 3 rd financial

year onwards. This can be great option for those self-employed individuals or professionals

on who most banks frown upon for personal loans. The best part is the minimum amount

required is just Rs. 500 to be deposited at least once in a year and a maximum of Rs.

1,00,000 can be deposited in a single year, with not more than 12 deposits in a year. You

can freely add more to your PPF contribution as and when as long as it does not exceed the

maximum limit. The 15 year lock in also serves as a good way to ensure forced savings and

when you actually withdraw the amount you will be pleasantly surprised at what you get. A

lot of people consider PPF as a pension fund for their retirement years as well.

START AN SIP IN GOOD MUTUAL FUNDS OR EXCHANGE TRADED FUNDS (ETF)

Mutual funds or ETFs invest in stock markets and various commodities like Gold etc. and

SIP is the best way to invest in mutual funds. SIP is systematic investment plan, which lets

you invest a small amount on a regular basis thus protects you from volatility of the markets.

It works on the law of averaging and you should get good returns on investments if you

invest money for a long term, say 5-7 years. How it benefits you is that say you can spare

500 or 1000 bucks every month but this small amount may not be able to buy substantial

number of shares or gold for you. Just like you a lot of people may invest their money in

mutual funds. This helps fund houses to build a corpus large enough and as mentioned

before, they have experienced fund managers who know when to enter and exit the markets.

You earn returns proportionate to your contribution and you get Units allotted to your

portfolio which have a value known as Net Asset Value (NAV) which helps you keep track of

your fund value. The best part is it automates your purchases in a sense that it is always

advisable to buy more when the markets are down and less when they go up. This is

automatically taken care of by the SIP. You pay a fixed amount say 500 a month, if that

month the markets are down, you automatically get more units allotted to you as they are

cheaper, and when the markets are up, your same 500 will buy you less units, thus

averaging the profit and loss over a long run. As your income increases you can increase

your SIP amount. There are a lot of tax-saving mutual funds known as Equity Linked

Savings Schemes (ELSS), which also help you save tax. Be sure to check the ratings of the

funds before you make an investment.

RECURRING DEPOSITS

Recurring Deposit account can also be great as a savings and investment option and has

good interest rates. It is also a great option to get the money rolling. It simply works like this,

you give the recurring deposit application to the bank, and it deducts the said amount from

your said bank account every month. On this amount the bank gives an interest as per the

applicable rates and you get the principal plus interest amount at the end of the deposit

tenure and you can easily renew it for same value or lower or higher value. A great example

of how RD can be used is let us say you are in the first year of first job and are still learning

about your finances but still want to save say 1000 a month. RD can be a good start. You

can have a deposit Rs. 1000 per month in the RD account with your bank for a year. This

way you cannot use that 12000 for a year and at the end of the term you get the principal

amount along with the accumulated interest. This amount you can now invest in any other

way say an SIP of 1000 a month and this is not even going from your current income as this

is the money you put away last year. You can still have the same Rs. 1000 be deducted from

your account this year for RD as well. Thus your outgoings remain the same at 1000 but you

get the double benefit of multiple investments just by the money you saved previously thanks

to your RD account and still you have some additional interest money.

NEVER BE LAZY TO FILE YOUR IT RETURNS

Ever since I started working, I have had some people around who never bothered with filling

their Income Tax Returns as they never felt the need to go through the ‘jhanjhat’ as they had

a handsome salary. Cool, but what happened was, the company deducted TDS at 10% p.a.

and even if an individual was drawing say a start-up salary Rs. 15,000 at that point he paid

18,000 as tax ([15,000X10%] X 12 months) even before filling his/her ITR. Well here’s where

and why you lose out. As per the current IT laws, you are not liable for tax if you do not fall

under the minimum tax bracket of 2 lac – 5 lac, where you are taxed at 10 %. Thus your

18,000 should be refunded to you, (TDS is compulsory deduction which is unavoidable, but

a refund can be claimed at the end of the financial year) which is as good as having an extra

bonus salary and hence filling a return is necessary even if one ignores the legal and

taxation laws. Also it is a proof of your income over the years and in the future if you apply

for a loan of any kind, ITR copies are needed for at least the last 3 years. Even if your

income is in the taxable brackets, still only the amount of your income that crosses the

minimum tax bracket will be taxed. Moreover certain investments are totally exempt from tax

and thus this reduces your tax liability and you will most likely get some sort of refund once

you file your ITR. This can be an additional source of income in the next financial year, and

this refund is tax free so it will not be included in your annual income for taxation purposes.

Investing early and investing smart is always a healthy way to build a corpus for those rainy

days. The sooner you start the longer you have to multiply your money and also you will

most likely have less responsibilities and outgoings early on in your career than at a later

stage. The investment options mentioned above are just a tip of the iceberg and once you

get hold of and have sufficient comfort level understanding and handling your investment

and money, you can invest in other avenues as well. These investment habits will generate

some good extra money and as you go along you can have various other investment options

and develop a sense of savings in you, which will go down well for years to come.

11 MISTAKES WHEN INVESTING IN SHARES

For ages now share markets have been most discussed and coveted Investment Avenue for

Indians. But why is it that more people fail with market investments and advice against it? It

is because they make these common mistakes while investing in share markets.

‘Share markets are not for everyone’ while this saying holds true, however it does not mean

that it is not to be invested in at all. Speculating on share markets and their trends is a bad

idea and every investor must refrain from it. When you are an ‘investor’ in shares it is most

likely that it is not your full-time profession, and chances are you will be carried away with

rise and fall in the stock markets. For this very reason the mutual fund route is often

suggested for equity investments. However if one feels to get a taste of direct equity

investment, then please for your own and your finance’s sake, keep in mind the following 11

Mistakes to avoid when investing in shares in India:

1. TIMING THE MARKET

First thing to keep in mind is that there is no such thing as timing the markets. Markets

these days do not follow a trend that a common investor can grasp or understand.

Broadly yes, you can say that due a certain political or international event the markets

may swing up or down, but apart from that one cannot be sure of how much and when

the markets will rise and fall. There will be ‘predictions’, ‘projections’, ‘analysis’ and what

not but still you as a common investor should not think of ‘timing’ the markets. Instead if

you want to start investing, start small, go for a fundamentally strong company that has

performed consistently well in the markets for a long term and invest in it and then take

it from there

2. FOLLOWING TIPS

If you receive tips and blindly put your money in it, be prepared for some rude shocks

down the road. Yes, you may gain at some point but following tips can be disastrous

and there are more cases of people losing money than gaining by following tips. As

mentioned before, study the trend of the company and its foundation along with its

performance on the market even when there was a down trend. If the slide is lesser than

most other companies or the performance consistent, then you can invest in their shares

3. BORROWING FOR INVESTING

Worst possible mistake to be made for any investment and the most catastrophic

mistake to invest in shares, is borrowing money to invest. Any investment advisor,

financial planner will tell you that borrowing for investment is the worst thing to do. The

returns you get will be negated by the interest you have to pay on your borrowings and

in case you incur even a slight loss that will result in you bearing a dual loss, which is:

interest on the borrowings + repaying principal amount + bearing the loss on investment.

I have seen people personally falling in this trap and going deeper. A colleague once

followed a tip from his friend and since he did not have ‘substantial’ amount of cash, he

took a personal loan (one of the most expensive loans), and invested in the ‘tip’ he

received. The markets crashed, he lost quite a bit and then had to borrow from a relative

to repay the personal loan and bear the loss, thus going in a spiraling debt trap. Invest

with what you have and slowly increase your investments.

4. THINKING YOU KNOW IT ALL:

Chances are you may have made good profits and since equity is known to give high

returns when the markets are good, you may stand to gain a decent amount of returns

on investment. If you have been fortunate to gain on the markets by making some

random investments, it is great for you. However, do not think that just on that basis you

know it all. Share markets are complex and while nothing is impossible, understanding

the markets will take considerable amount of time, knowledge, dedication and even then

they will remain unpredictable. Biggest of market Gurus and Financial Analysts who

appear in slick suits on your television daily giving their ‘expert opinions’ have fallen flat

on their faces in the current market scenarios. So don’t get overconfident and think you

know it all. Stick to the basics and invest systematically.

5. HOLDING ONTO DUD SHARES

If you have been investing in shares for a long time, you probably know that ultimately

prices average out and you may be able to get decent returns on your investment in

direct equity. However, this can result in holding onto to dud shares; a common mistake

while investing in stock markets. A practical example is of a famous Indian company that

came up with an IPO for its foray into the power sector and it opened at about Rs. 400 in

2008, and a lot of people bought the shares at that price as the company was ‘too big to

fail’ and in the long run it was sure to give great returns. However, today after almost 5

years that share is languishing at Rs. 65- 70. In such cases the averaging will not work

out. It is a good idea to book your loss and get rid of such duds that have not risen even

after a long time or else it keeps eating away the profits of your investment portfolio.

6. THINKING SHORT TERM

Equity is the best asset class to invest in, which will give you inflation beating returns in

the “LONG RUN”. Remember this statement. LONG RUN being the keyword. Short term

gains may come once in a while but chances of you losing out is also higher. As

mentioned before, if you are a common investor, whose primary profession is not shares

trading or dealing in stock markets, look for the long term. Short term trading and

speculation should be left for the ‘experts’ or full time share traders and brokers and

investment big fishes. Long term investment will give you decent returns and hence the

investment mistake of thinking short term should be avoided at all costs.

7. NOT BEING PATIENT

Just like thinking short term is a stock market investment mistake, being impatient is

another investment blunder. If you invested today and tomorrow the market crashed,

don’t think of liquidating it. Be patient. Things will work in the long run. If the company

you invested in is fundamentally good and has a proven consistent record in the past,

chances are the prices will improve and you will get good returns along the way. Be

patient. Remember Investments are not 100 meters sprint races, they are marathons.

8. PANICKING

Don’t panic. Markets will fall, markets will rise, markets will stabilize, and they will correct

themselves every now and then. This happens and will happen, so stay invested, if the

shares you hold are fundamentally good and the proven over the past, you will get good

returns. Don’t panic and break your investment habit.

9. BLINDLY FOLLOWING “MARKET ANALYSTS AND MONEY GURU’S

Remember the so-called experts and market Guru’s appearing on your screens are also

humans and they do not run the markets, however influential people they may be. Their

predictions and assumptions and analysis may go wrong. As mentioned before, markets

are complex and are affected by a lot of domestic and foreign factors which at some

point are beyond anyone’s control. So do your own research and don’t blindly follow

what your favourite business TV channel told you.

10. BUYING BECAUSE A SHARE IS LOW & SELLING BECAUSE IT IS HIGH

If you feel a share is attractive to buy just because it is priced lower and will hence rise

in price over the years, then this is a BIG mistake. The share can be low due to a lot of

factors and may also be a case where the share has fallen steeply from a higher price

and is the actual valuation and won’t gain much. Do not make this mistake while

investing in shares to just go for a share just because it is priced lower. Similarly, do not

think that just because the share is priced higher it will not gain much. Again it all

depends on the performance, market trend and past record and fundamentals of the

company. Just like you ‘shouldn’t judge a book by the cover’, you shouldn’t be judging a

share based on its price.

11. PUTTING ALL YOUR MONEY IN EQUITY

Last but not the least, do not put all the money you have for investment into shares.

Diversify. Keep a balanced portfolio with a good mix of equity and debt as well as other

types of investment avenues like Mutual Funds, PPF, FD, Recurring Deposits etc. If

markets fall, you will loose all you have if you do not diversify. In worst scenarios when

markets are bad your debt investments will at least give you some cushion. So DO NOT

make this stock market investment mistake of putting all your funds into the stock

markets hoping they will give fantastic returns. Don’t be greedy.

Stock market is not a bad place to invest as a lot of you may think. Nor is it a place only for a

selected few. It is an investment avenue just like any other, however you should be more

careful and prepared to face some sort of loss and stick to your investments in a regular

systematic way and avoid these mistakes for investing in shares. Also if you feel that still

direct equity investment is not for you, worry not as you can still get equity investment going

by way of the relatively safer mutual fund route. You can refer our guide to understanding

mutual funds here and how to invest in mutual funds here for more details.