What Is The Purpose Of Investment In Share Market?

Usually, it is seen that young people desist from investing, especially for long term. On the contrary, they should start investing when they are young because, if money is kept invested for a longer time it gets more time to grow.

Investment In Share Market

The basic idea of investment is to put your money to work for you. One should choose his investment mode or method in such a way that it gives best returns possible over a period of time, say a year or five years or 10 years or more. All investment do rise or fall over a short period of time. That is there is up and down periods in each investment.

Saving is to set aside a portion of your present earnings for future use and investing is to use that saving, in such a way that it grows over a period of time so as to beat inflation.

Many young people avoid investing in stocks (equity) for a long period. They only say that they are still young and have a lot of time on hand for investing. They don’t understand the value of early investing and compounding. If they start early even with a small amount, investing regularly, over a period of time will become huge corpus. They have long working life, approximately 35 years or so, for their investment to grow.

  1. Equity has more potential for growth

It is seen that equity (stocks) have earned more than other saving instruments available over a long period of time and that too consistently despite its up and downs in short term.  Let us see how much return one will get in different avenues that one can invest in.

  • Savings in banks: 4–6% per year (unable to beat inflation)
  • Fixed Deposit: 6–8% per year (nearly at par with inflation)
  • Mutual funds: 10–15% per year (able to beat inflation with good margin)
  • Stock Market: 12–18% per year (able to beat inflation with very good margin)

One can clearly see stocks have the highest potential to beat inflation. Inflation is about 5 to 7% per year. You can make money in Indian stock market.

  1. Do not worry if stock dips or rises

Everyone knows that share prices rise and fall. But in long run, they rise. One cannot lose or gain until one sells or purchases. So if you are having the share and share prices are down, simply don’t sell your script. Or if share prices are high don’t purchase them. Higher or lower value is when you are selling/purchasing it. Not if you are holding it. While holding is only on paper (now a day’s only in electronic form with your DP) it does not matter.

Stock markets are cyclic. So you can hold on to them until your price requirements are met. Once high sell, and then you can again purchase when low. Same company, the same number of shares and at a lower price.

The graph depicts Indian stock market overview of nearly 3 and a half decade.

  1. Mix and match your investment portfolio

One should have a good mix and match of investments. Stocks should also be a part of your long-term investments. The mix of investment depends on your financial situation, your risk taking appetite, your age and time period for which you wish to stay invested.

You can get stock market investment tips from the internet and other sources, regarding how to purchase, which stocks to purchase and when to purchase them, for a long-term wealth building from stocks.

How to make a winning trading plan in just 11 steps?

Traders should make a virtually full proof plan before entering a trade. “Fail to plan and you plan to fail” goes the old dictum. If you scan through all successful traders you will see a common thread. They have a plan ready for the day. And in some cases even plan “B”, for minor changes, if plan “A” is steering out of the way. So you either follow your written plan systematically or perish.

Only minorities of traders have a written plan and that minority is successful ones. By writing down the process and documenting it you can easily figure out what steps work in your favor and which do not. You can avoid costly mistakes in future.

winning trading plan

Let us see few salient features of the plan in the context of Indian stock market overview of trading.

  1. Testing yourself

After making a plan you can test how successful and effective your plan is by paper trading. You can judge your strong and weak points. In trading when someone wins there is someone who has lost. Those with plans make the profit from those who lose because they were not prepared any plan. It is give and take in trading.

  1. Be calm and cool

One should be cool, calm and composed. Should be ready to face challenges the market has to offer. There is a saying “Do not promise something when happy and do not make decisions when sad.” This holds true for trading. Because if you are mentally somewhere else and physically somewhere else, then you will not be able to take a proper decision and right direction of your planning. There is always an another day. There are many benefits of intraday trading.

  1. Risk tolerance

Everyone has a certain capacity to take a risk. It varies depending on person to person and time to time. Maybe today your tolerance level is 1% risk of loss (in a day trade) and maybe at other time periods, you may be in a position to take 3% risk of loss. If during any time during trading you feel like things going against you in a sequence you can call it a day off at that movement itself.

  1. Risk/reward ratio

One should have a realistic target for profits to be earned for the day. You can set your risk/reward ratio. Say you can risk losing Re. 1 if a reward is Rs. 3. This target you can set for daily trade or you can consolidate for weekly basis or monthly basis. One should regularly monitor these and make required changes if you are moving away from your target.

  1. Follow related news religiously

One should scan news regularly and religiously the before the market opens. Keeping oneself updated. Write down those important piece of information like business news, articles, an outcome of some important meeting, changes or variation in government policies, the trend of other stock exchanges, business-related economic reports.

One can scan news through the newspaper, morning news on TV on different channels, through the internet, etc. And later in the day can analysis which all news has affected today’s stock market, and which companies were most affected. Professional traders work on probability. More the probability of happening of an event, more accurate will be the trading decision and direction. There are many people who make money in Indian stock market over a long period of time.

  1. Clear warning system

One should keep a tab on the support (minor and major) and resistance levels. Whatever be the system or program you follow, you should set an alarm for warning when the required level is breached. An alarm can be a buzzer or be flashing signal clearly visible without any disruption or distraction. Overlooking it can be a costly affair.

  1. Upper and lower limit

Most traders maximize their attention and effort towards buy signals and are least bothered about when and where to exit that trade. They keep on holding onto the script even if it is going down as they do not want to take a loss. If you cannot overcome your ego for taking the loss then you will never become a good trader.

In other words, if the script is going down it means you have miscalculated something somewhere and were wrong. Even seasoned traders have their share of losing trades, but by managing your invested amount and limiting losses, they make the profit.

Traders should know when to exit the trade. They should write down both the ends of each script. The lower limit being stop loss and the upper limit the profit target they wish to earn. Once your script touches any of these levels, just exit.

  1. Computer programmed to buy automatically

Let us say we wish to buy certain script at Rs.100. And presently it is trading above Rs. 100, say 103 or 105. One can program the computer in such a way that it triggers a signal once the script reaches Rs. 100 and call for buy. Minimum target should be at least 3 times the stop loss and it buys the script automatically, once the required conditions are met.

  1. Recording minute details

It is one of the most important aspects of good traders. Good traders keep a minute account of each trade they made. Be it profit or loss. All detailed description of essential features like target prices one has set, stop loss one has set, entry and exit price, support and resistance level, time of purchase and sell, market opening and closing points, and all useful comments,  news and lessons learned.

This will act as a quick reference guide in future. It will save you lot of time and energy for identifying what went wrong and what was right for your future trades.

  1. Careful and detailed analysis of the day

After the close of the day, one should do thoroughly analysis of the day trading. Writing down conclusions and analysis of the day with as many details as possible. This will help you know where you are going wrong and you can minimize your wrong decisions in future trades. It will improve your trading skills. By this way, you can avoid share buying and selling mistakes.

  1. Trading is a bread earner for you and your family

As any other businesses, you should treat trading as a business and give your due respect. After all, it gives you and your family bread and butter, and keeps you financially healthy in long run. Each trader has his personal trading methodology, style and goals. So he himself will have to prepare his plan.

Why Indian Women Are Better Investors?

Indian women nowadays are showing more and more interest in equity markets. It is evident from market chit-chat and share-talk at dining table instead of simple family gossip. One can also see an increasing number of articles by women on finance, in business newspapers, magazines, on TV shows and internet. Expressing their views, participating in debates and along with reasoning why they have to be financially independent.

Why Indian Women Are Better Investors

As educational levels in women are increasing, more and more women are stepping out from their home and joining the work force. To earn extra income for their family and personal needs.

Educational background, increasing divorce rates, financial independence, long-term wealth creation (women tend to live longer than men), working independently as day trader through various channels of internet/SMS, sharing families financial burden etc seems major points why more and more women are attracted towards stock market.

They are trending the path (knowing or unknowing) what most investment gurus say. Maybe it is in their nature. We will take an Indian stock market overview vis-à-vis how women are investing and following stock gurus “advice”.

  1. Product knowledge.

In the maximum household, women are the main purchasers of day to day goods. In other words, they keep their eyes and ears open as to which new product has been launched in the market and get its “practical” review. Or knowledge about which product is in more demand than others.

Unknowingly doing research on products and discovering the winning investment opportunity, when the company is still in its infant stage and has a good potential to grow.

  1. Risk factor

Men and women perceive risk in a different manner. Men usually take more risk. They will hold on to stock that does not perform well and get in more deep crises. Since they have invested in stock they cannot take the defeat. Their ego does not allow them to let go of nonperforming stocks.

Women usually have less risk-taking nature. Women tend to take less risk, just for the sake of higher returns. They are calculative of their investments and no sooner she realizes that she will not get good returns she will sell the stocks against small loss immediately. Usually, she takes one step at a time. She will go more for dividends paying companies instead of lump sum returns. This makes her loss little less.

Even before purchasing of stocks women usually do a lot of research. Is the company profitable, does it give dividend regularly, is it possible to buy the stock at a reasonable price, etc? Investment returns are the combination of dividends, bonuses and price appreciation.

  1. Goals

Women usually before purchasing any stock have a definite goal what they are investing for, like for children higher education, or for house purchase or home renovation, or for buying a household appliance, or for marriage, or for retirement. They chase goals and not returns. Stock gurus have always emphasized to set a goal for the investment made.

  1. Regular savings

It is a well-known fact that women usually save small amounts (husband’s do not have any knowledge of) and that too regularly, for a rainy. This habit is engraved when she purchases shares. She purchases/sell a few shares at regular intervals. This, in turn, averages out her purchase/sell in event of volatile market conditions. Just as market gurus keep on preaching.

  1. Trading frequency

While buying and selling the stock the broker earns a commission. This commission, along with government taxes, eats up on your investment returns. Women trade very sparingly, thus they save upon the commission and government taxes, little by little. This when consolidated over a long period of time, turns out to be a hefty amount.

Who is more active in Indian Share Market? Men or women?

Indian stock market is growing exponentially in terms of number of stock exchanges, amount raised from market, number of listed companies (approx. 7000), trading volumes, market capitalization, investor population and price indices.

Capital market is a medium through which scattered and small savings of investors is used for productive activities of corporate.

Active in Indian Share Market Men or women

  1. Investment knowledge of stock market

There are 945 females for every 1000 males in India according to census.

But it is still the men who rule the roost when it comes to stock trading. According to a survey 85% investor in stock market are males. According to one of the estimates only 42.2% of the total employed women have knowledge of investment in stock market.

As regarding returns from stock market only 49.9% of the total employed women who had knowledge of investment in stocks think stock market gives average returns, 26.3% think it gives good returns and 5.9% think it gives lower return. 17.9% have no knowledge about returns from stock market.

In other words they are unknown of the fact that they can get returns from stock market. We can get good returns from Indian stock market overview in the present conditions.

  1. Income disparity

From one of the survey it was found that females earned nearly 21% less than their male counterparts even though both posses same qualification, put in same working hours in office, and for the same post and experience. This shows there is wide gender wage disparity.

The gap in income is directly related to the available disposable income for investment purpose. But even after this disparity women tend to manage personal debt in better way than men. They have slightly lower debt balance then men.

  1. Investment diversification and risk

Men and women investments differ vastly. Women are better than men in diversifying their portfolio they usually do not take unnecessary risks with their investments.  Because of taking less risk they get moderate returns provided stock prices are going in favorable direction and also moderate protection when stock prices move in opposite direction.

  1. Trading frequency

Another difference can be seen in trading frequency. Men engage in 45 percent more activity then women. But trading too frequently can diminish ones return on profit margin.

  1. Controlling emotions

Another difference is women can control their emotions of greed and fear which is an important factor of successful trading. It is the greed quotient in men that leads to less returns. Patience is also one of the factor.

Irrespective of gender both are capable of improving their investment knowledge and their financial situation.

Top 4 Myths And Facts About Indian Stock Market Exposed

With reference to the stock market, one can say there are group people who are very much involved and dependent on the stock market, day in and day out. They earn their bread and butter from the stock market. Their whole family depends on the earnings they get from the stock market.

Then there are other groups of people who invest in stock market to increase their wealth. Their principle income is either through jobs or business. For them, share purchase is just an investment vehicle.

Apart from these groups, there are others who do not have much knowledge about the stock market. They think it is a mysterious place, where there is a lot of shouting going on and sometimes there is a lot of jubilation or despair going on. People shouting here and there and signaling one another. The common man is unaware of what is going on inside the stock market. Let take a look at Indian stock market overview and myths surrounding it.

Myths and Facts

  1. Place only for the rich and famous

This is one of the most typical myths that a stock market is a place where only rich and famous personalities put their money. Or only those people who have hordes of money can invest in stock market. Once all your paperwork and registration is complete then you can start purchasing stocks, which you can sell it at an appropriate time to make a profit. Share prices are in a range from few rupees to thousands. Similarly, the quantity that you can purchase is from one share to hundreds to thousands to lacs depending on your pocket.

One can start purchasing shares with an as small amount as one hundred rupees and can purchase any day whenever one wishes during working hours. There is no minimum fixed level for stock investment.

  1. Nothing more than gambling

This is one of the biggest myths that keep investors at bay from approaching stock market. This notion persists with investors or the common man who have no knowledge regarding the difference between gambling and the stock market.

Gambling is pure luck game. Luck can favor you sometimes but cannot favor you all the time. A stock market is about speculation. Speculation is an investment in real estate or stocks or in commodity, in the hope of gain but with a risk of loss. Your ability to purchase/sell right stocks at right time and at the right price so as to profit or loss from it. Luck has virtually no role to play. One can also minimize risk to an extent by taking into consideration certain points. One can take calculated and timely decisions so that risk of loss is less and gain from profit is more.

It is true that many people have riches to rags story in the stock market. It was not because of being unlucky, but because of greed and over expectations. Similarly, it is also true that there are rags to riches story in the stock market. It was not because of being lucky, but because of patience, calculated and timely decisions.

  1. High price shares will fall and low price shares will rise.

This is also one of the widespread myths that share price which are high today will one day fall and share prices which are low today will one day rise. Actually, those share which are overpriced/underpriced because of rumors, misjudgment, and other things, will on correction of the market will fall/rise. But if a company is potentially strong its price will not fall and those company which is weak, its prices will never rise.

Many factors and ratios are considered while evaluating company’s share price. There were moments when Sensex was at 8000 pts (also at different points) and people said the bubble will burst. But you know where it is today.

  1. Trading can be done without understanding.

There is a myth that stock trading is nothing but buying and selling of shares. People do jobs or business like an accountant, carpenter, plumber, designer, etc.  They gain requisite knowledge over a period of time. While on learning path they face difficulties which they resolve and learn from their problems and shortcomings.

Same thing applies in the stock market. Little understanding is not enough for trading. One does gain knowledge when one is involved, what to be done and what not to be done, observing business tricks of the trades, logical reasoning, applying common sense, calculating, studying patterns and charts, analyzing financial statements, handling difficult situation, figuring out what went wrong and how to correct it and move ahead. This way trading will be more successful and profitable.