There is always uncertainty in the world of stock market. But investors who invest smartly and wisely earn higher returns and even if there is a loss, it is minimal. Investing in the stock exchange is also risky. In such a situation, developing a good understanding before investing or understanding the important and technical things proves to be very helpful in making strategies from stock selection. Let us discuss some special things here so that investing in the market can help you get better returns.
Rely on good old asset allocation
As an investor, it is important to understand asset allocation in the sense of how much of your money should be in equity, how much in debt, how much in gold and how much in liquid assets. Then you can consider how much should be in large-cap and mid-cap equity, how much in long duration and short duration debt. The advantage of using an asset allocation approach for equity is that it automatically redistributes between equity and debt.
Give preference to equity funds
There are several challenges in buying direct equities. Firstly, it requires a lot of understanding and insight into the stock market and the business models of individual companies. This can be very difficult and time-consuming for most individual investors. According to SBI Securities, the problem is that it is very difficult to diversify in direct equities unless your corpus is very large. A better way is to choose a diversified equity mutual fund. Even if you invest an amount of Rs 10,000; it gets invested in a diversified portfolio of which you get a proportionate share in the form of NAV.
Invest in a systematic and disciplined manner
You should invest through a Systematic Investment Plan (SIP). Equity mutual funds are also not a completely safe investment, as equities involve risk. However, when you take the SIP approach, you are investing a small amount periodically. This works better for you in case of market volatility. It works best when markets are volatile as it ensures that you get a better average price than a lump sum purchase.
Passive investing saves you from stock selection
When you ask how to invest in the stock market, the logical answer is that you want to do better than the index. However, if the fund manager is struggling to beat the index, you can buy the index. Yes, you can do this by investing in index funds and index ETFs. These funds are passive funds that mirror the index over time. There are two advantages to index investing. First, there is no unsystematic risk to worry about and there is only systematic risk. Second, the Sensex has given a CAGR return of over 16% over the last 44 years, so index investing can be very profitable in itself.
Think about the long term
Investing in the stock market should be done with a long-term view. This may not make it a safe investment, but it can reduce the risk involved in such investments to a great extent. If you hold an equity portfolio for more than 7 years, the probability of loss is less than 5% and if you hold it for more than 10 years, the probability of loss is almost zero. With a well-diversified portfolio, a long-term strategy is best for the Indian stock markets.
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