indrajit_v5
Indrajit Das
The buzz on Dalal Street is positive. Many optimistic market players are hopeful that despite the minor hiccups the market is headed for a new high. They point out the recovery made in the last few weeks as proof. However, Prakash Iyer is confused. He is not sure whether he should join the party in Dalal Street. “When you know people made more than 100% from stocks in the last year, it is very tempting. But looking at the ups and downs of the market, I think I don’t have a stomach for it,” says Iyer. His confusion is shared by many.
The question is: would you continue to put your savings only in safer avenues like fixed deposits, company deposits and bonds? Or would you also consider investing a part of your savings in stocks?
“It is a mistake people commit over and over again. They get into the stock market when the market is peaking and then they blame the market for losing money,” says Jayant Pai, vice president, Parag Parikh Financial Advisory Services. “The fact is, stocks are the only investment which will give you 15-20% return in the long term. It should be part of your investment portfolio. The extent of exposure should be depending on your risk profile.”
“The first thing one should remember is not to follow any particular trend while investing in stocks. Stick to your plan, be patient and pick good benefits,” says Mukesh Dedhia, a certified financial planner (CFP).
Such a fine balance
To translate that into action, you should first figure out how much of your investment should go to equity. A very old thumb rule to find that out is to deduct your
age from 100. For example, if you
are 20 years old, your equity exposure should be around 80%.
Remember, it is only a thumb rule and you don’t have to follow it religiously. For example, if a 20-year-old has dependent parents, the exposure to equity should come down as the person may not be in a position to take huge risk. The best thing is to look into your various financial goals. Stock is ideal for goals which need to be realised after a gap of five years or more.
Easy way out
Does the stock market make much more sense to you than the KKK serials on TV? If you find stretching yourself to keep up with both, your best bet is to hire an investment expert to take care of your money in the market.
Thanks to the advent of mutual funds, you can hire a person with very little money. Also, you can start with as little as a few thousand rupees. “The best route for lay persons is to go for a systematic investment plan (SIP) in a diversified equity scheme. Since you don’t know what is going to happen in the market in the future, that is the best way,” says Pai. SIP allows you to invest in a mutual fund scheme with as little as Rs 500.
In fact, many investment experts find it difficult to stop singing in praise of SIP. Here’s why: SIP gives you the benefit of dollar cost averaging. In simple words, it averages out the cost of your holdings as you are investing at regular intervals over a period of time. Secondly, you are not taking a call or timing the market. For example, the level of the market is important if you invest your money at one go, as how much you would make depends on where the market goes from there. If you are investing regularly, you need not bother about market levels as you may benefit from averaging.
However, SIP is not the end itself. Before opening SIP, select the fund carefully. You should pick a fund with a good performance record over at least the last five years.
Be your own fund manager
You can also invest directly in stocks if you think you have the time and intelligence to do it. However, it is not easy. “It is not very easy to keep track of what is happening in the economy, industry and companies, as we all do other jobs to earn a living,” says Dedhia.
If you a determined to do it, he say, you should carefully follow the trends in economy, analyse the industry you want to invest in and then select a company you want to invest in after analysing the fundamentals of the company.
Looks like it is easier said than
done.
The question is: would you continue to put your savings only in safer avenues like fixed deposits, company deposits and bonds? Or would you also consider investing a part of your savings in stocks?
“It is a mistake people commit over and over again. They get into the stock market when the market is peaking and then they blame the market for losing money,” says Jayant Pai, vice president, Parag Parikh Financial Advisory Services. “The fact is, stocks are the only investment which will give you 15-20% return in the long term. It should be part of your investment portfolio. The extent of exposure should be depending on your risk profile.”
“The first thing one should remember is not to follow any particular trend while investing in stocks. Stick to your plan, be patient and pick good benefits,” says Mukesh Dedhia, a certified financial planner (CFP).
Such a fine balance
To translate that into action, you should first figure out how much of your investment should go to equity. A very old thumb rule to find that out is to deduct your
age from 100. For example, if you
are 20 years old, your equity exposure should be around 80%.
Remember, it is only a thumb rule and you don’t have to follow it religiously. For example, if a 20-year-old has dependent parents, the exposure to equity should come down as the person may not be in a position to take huge risk. The best thing is to look into your various financial goals. Stock is ideal for goals which need to be realised after a gap of five years or more.
Easy way out
Does the stock market make much more sense to you than the KKK serials on TV? If you find stretching yourself to keep up with both, your best bet is to hire an investment expert to take care of your money in the market.
Thanks to the advent of mutual funds, you can hire a person with very little money. Also, you can start with as little as a few thousand rupees. “The best route for lay persons is to go for a systematic investment plan (SIP) in a diversified equity scheme. Since you don’t know what is going to happen in the market in the future, that is the best way,” says Pai. SIP allows you to invest in a mutual fund scheme with as little as Rs 500.
In fact, many investment experts find it difficult to stop singing in praise of SIP. Here’s why: SIP gives you the benefit of dollar cost averaging. In simple words, it averages out the cost of your holdings as you are investing at regular intervals over a period of time. Secondly, you are not taking a call or timing the market. For example, the level of the market is important if you invest your money at one go, as how much you would make depends on where the market goes from there. If you are investing regularly, you need not bother about market levels as you may benefit from averaging.
However, SIP is not the end itself. Before opening SIP, select the fund carefully. You should pick a fund with a good performance record over at least the last five years.
Be your own fund manager
You can also invest directly in stocks if you think you have the time and intelligence to do it. However, it is not easy. “It is not very easy to keep track of what is happening in the economy, industry and companies, as we all do other jobs to earn a living,” says Dedhia.
If you a determined to do it, he say, you should carefully follow the trends in economy, analyse the industry you want to invest in and then select a company you want to invest in after analysing the fundamentals of the company.
Looks like it is easier said than
done.