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Stay away from stock tips

 (Illustration: Sudhir Shetty)

Very often when there is a conversation about stock markets with friends or colleagues, invariably you will hear someone offering a tip on a stock, while someone would be willing to invest and make big money. In reality, this story usually doesn’t end well. Many have lost money on stock tips. If you want to enter the equity market, here is what you should know before investing:

TAKE THE MUTUAL FUND WAY

If you don’t know anything about the stock market or have been tempted to venture into it through stock tips, don’t. If you really want to invest a part of your portfolio in equities, start with mutual funds. “You should not enter the stock market through direct equity. Instead, take the equity mutual funds route. But, if you are interested to understanding stocks, you need to begin by getting basic education regarding stock market and firms. Relying on cheap stock tips, isn’t a good idea,” said Kiran Telang, a certified financial planner.

ETFS: AN OPTION TO CONSIDER

First-time investors may not be able to do the due diligence. “Figuring out the entire market or even crunching numbers is not possible for a new investor. You could start by committing a small amount in exchange traded funds (ETFS), which are made up of stocks, making a particular index such as Sensex or Nifty. You need a demat account for investing in an ETF,” said Pankaj Mathpal, managing director of Optima Money Managers. ETF simply tracks benchmark index. A minimum of one unit of the ETF can be bought and it is done in the same way as shares are bought through a broker.

INVEST IN COMPANIES YOU UNDERSTAND AND USE

Once you get a hang of ETF, even before you start crunching numbers for individual stocks and read technical charts, use your common sense. Firstly, understand the companies you want to invest in. “Don’t buy stocks you don’t understand. Buy a company you understand. For instance, as a lay investor you will understand a certain business a whole lot better than other sectors. Look around in the real world and some businesses are used by you consistently for years,” said Mathpal.

SIP IT UP

Just like you have systematic investment plan (SIP) in mutual funds, many brokers now give you the option of investing in direct equity through SIP. “Say you have 5,000 a month to invest in equity. Choose three stocks, and set a date with the broker to buy one share each of those three companies every month. The SIP value will change every month on a particular day, based on how the stock or the market are doing that day. Some months it could be 4,800, on others is could be 5,200,” said Mathpal. While investing into equity funds, take a disciplined and long-term approach.

REALITY CHECK

If taming the stock market was so easy, everyone would do it. Losing money in the market is real, and facing all the volatility of the stock market is part of the deal. While dealing with direct equity investing, besides looking at the fundamentals of the stock, the number crunching and price-to-earnings ratio, you also need to consider how you emotionally handle your investments.

INVESTMENT FOR BEGINNERS

There’s no point in investing your whole monthly investable surplus towards direct equity. You can start with invest-

ing a small part of your investable corpus towards direct equity. Chose an amount you are willing to lose without breaking your mind while learning the reins. The basic of stock market isn’t about numbers, it’s about common-sense approach. Once you’ve mastered it you can step up.

[“source=livemint”]

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