The Compelling Rationale Behind Investing

Investing holds immense value for individuals seeking to achieve their financial aspirations. It serves as a powerful tool to :

Realize Financial Goals : Investing empowers individuals to transform their financial aspirations into tangible realities. Whether the goal is securing a comfortable retirement, acquiring a dream home, or funding a child's education, investing can accelerate the path towards achieving these milestones.

Cultivate Wealth : The magic of compounding, where returns generate further returns, enables investments to grow exponentially over time. Harnessing this principle allows individuals to accumulate wealth at an accelerated pace.

Shield Against Inflation: Inflation, the persistent rise in the prices of goods and services, erodes purchasing power over time. Investing provides a hedge against inflation, ensuring that the value of one's wealth remains intact.

Types of Investments

Today, investment is mostly associated with financial instruments that allow individuals or businesses to raise and deploy capital to firms. These firms then rake that capital and use it for growth or profit-generating activities. While the universe of investments is a vast one, here are the most common types of investment:

Stocks : Stocks represent ownership shares in publicly traded companies. Acquiring stocks grants individuals a stake in the company's success, potentially leading to capital appreciation and dividend income.

Example: Common stock, preferred stock, growth stock, Value stock, Penny stock, IPO stock

Bonds : Bonds essentially represent loans made to companies or governments. In exchange for providing capital, bondholders receive periodic interest payments and a principal repayment upon maturity.

Example: Treasury bonds, Corporate bonds, Zero coupon bonds

Real Estate : Investing in tangible assets like properties can generate rental income, capital appreciation, and potential tax benefits. However, real estate investments may involve illiquidity and significant upfront costs.

Example: Any residential house property

                commercial property like hospitals, hotels, shopping centers, etc.

                Industrial property used for manufacturing, production, distribution,  

                storage, and research and development.

                Land

               Special purpose like library, park, government building, etc.

Mutual Funds : These professionally managed investment portfolios offer diversification across a basket of stocks or bonds. Mutual funds provide a convenient and accessible avenue for investors seeking exposure to specific market sectors or asset classes.

Example: Nippon India Large Cap Fund, Aditya Birla Sun Life Small & Midcap Fund , Tata Equity PE Fund, HDFC Monthly Income Plan – MTP,L&T Tax Advantage Fund, SBI Nifty Index Fund

Growth Investing : Embracing the Potential for Exponential Growth

Growth investing centers on identifying and investing in companies poised for   rapid expansion, often characterized by innovative products, expanding markets, and a track record of consistent growth. These companies, while bearing inherent volatility, offer the tantalizing prospect of exponential returns.

Value Investing : Unveiling Hidden Gems in the Market

Value investing delves into the world of undervalued companies, seeking those that trade below their intrinsic worth. Value investors meticulously analyze financial statements, industry trends, and competitive dynamics to uncover hidden gems, confident that market inefficiencies will eventually recognize these companies' true value.

Income Investing : Prioritizing Steady Income Streams

Income investing prioritizes stability and predictable returns, gravitating towards companies with established dividend-paying histories. These investments provide a steady stream of income, often sought by retirees or individuals seeking to supplement their primary income sources.

Index Investing : Embracing Market-Aligned Performance

Index investing embraces the wisdom of the crowd, replicating the performance of a broad market index, such as the S&P 500. Index funds offer diversification, low fees, and transparency, making them a compelling choice for long-term investors seeking to mirror the overall market's growth.

Passive vs. Active Investing : Striking the Right Balance

Passive investing advocates for a hands-off approach, relying on index funds to passively track market indices. Active investing, on the other hand, involves active portfolio management, seeking to outperform the market by carefully selecting individual securities.

Technical Analysis vs. Fundamental Analysis : Unraveling Market   Dynamics

Technical analysis utilizes past market data, identifying trends and patterns in price movements and trading volume to predict future price movements. Fundamental analysis delves into a company's financial health, assessing its assets, liabilities, earnings potential, and competitive landscape to determine its intrinsic value.

Short-Term vs. Long-Term Investing : Aligning Goals with Time Horizons

Short-term investing focuses on capturing short-term profit opportunities, often driven by market fluctuations and speculation. Long-term investing prioritizes wealth accumulation over extended periods, weathering market fluctuations and capitalizing on compounding returns.

Considerations for Choosing an Investment Strategy :A Tailored Approach

Choosing an investment strategy demands a thorough evaluation of individual circumstances and financial goals. Investment goals, risk tolerance, time horizon, investment experience, and financial situation collectively dictate the most suitable approach.

Seeking Professional Guidance : Navigating the Complexities with Expertise

The labyrinthine world of finance underscores the importance of professional guidance. Experienced financial advisors possess the expertise to assess individual needs, risk tolerance, and financial situations, crafting a tailored investment strategy aligned with specific goals and time horizons.

Investing, while encompassing inherent risks, presents a powerful tool for achieving financial objectives. By understanding the nuances of various investment strategies, carefully evaluating personal circumstances, and seeking professional guidance when necessary, individuals can make informed investment decisions that pave the way towards a secure and prosperous financial future.

"Build your wealth brick by brick, invest for lasting success!"

"Want to gain more knowledge on investing? Let Fili illuminate the path for you."

Download now and enjoy!!

FAQs related to investing

What time can you trade in the stock market?

The general operating hours of the stock market are from 9.15 am to 3.30 pm only on weekdays. But you can also trade after hours and place After Market Orders (AMO) if you fail to buy or sell during work hours.

 Is the stock market open on the weekends?

The stock market is not open on Saturdays, Sundays, and public holidays. It only operates during the given time window on weekdays.

How much time should I spend while researching stocks?

It depends on whether the individual is selecting the stock for trading or for long-term investment. If the individual is trading in stocks, then there is no need to spend a lot of time on fundamentals. Rather, here the person should read charts, trends, patterns etc. and get more involved in the day-to-day market activity.

On the contrary, if the person is investing for the long-term then more time should be invested while studying the stocks. It is essential to check the fundamentals of the company, its management, financial, competitors etc. if the investment horizon is of more than 1 year. You must analyze the company’s fundamentals, financial statements, and other reports in detail.

Where can I get the company’s financial report and other information?

The company information is easily available on stock exchanges (NSE, BSE), company website under investor relations or about us section of the website. The information is also available on other financial websites like money control, screener.com etc.

We also recommend reading annual reports of the company to have a deep understanding of the company’s business and its future prospects.

Should I invest in the upcoming IPOs?

IPOs are the products of the bull market. The companies generally get public when everything is good in the market like people are optimistic, the economy is doing well to earn listing profits. The real test of a company is during the bear market i.e. how they survive in the falling market.

If the individual can find such IPOs that are very promising (good business model, strong financials, efficient management, decent valuation etc.), then feel free to invest in them.

Is investing in small-caps more profitable than blue chip companies?

Small-cap companies have the potential to grow faster compared to blue-chip companies. There can be a number of hidden gems in the small-cap industry that are yet not discovered by the market. On the other hand, large-cap companies have already proved their potential to the market.

Besides, the quality of stock is more important than the size of the company. There are a number of large-cap companies which has consistently given good returns to their shareholders. Overall, investing in small caps can be more profitable than large caps only if the fundamentals and future prospects of the business look promising.

Should I invest in stocks when the market is at high?

If the market is high, then start making the watchlist of stocks. Keep an eye on the stocks with good fundamentals. If the investor finds some good stocks and is ready to invest, then avoid lump sum investment. Average out the stocks, this will reduce the chances of buying stocks at a high price.

What kind of stocks should be avoided for investment?

The individual should avoid investing in stocks having low liquidity. The low liquidity makes it hard to trade in these stocks. Additionally, finding the data for analyzing these companies might be hard as information on public platforms is generally not easily available. Thus, lack of research may result in loss-making investments. Additionally, one should also avoid investing in penny stocks.

How many stocks should I buy in my portfolio?

The portfolio should not be over diversified as over-diversification does not yield good results and it becomes difficult to keep an eye on all the stocks. Similarly, the portfolio should not also be concentrated in one or two stocks/ industries as a tremendous fall in the price of one stock will adversely affect the overall portfolio performance.

Usually, investors can have 8-10 stocks in the portfolio depending on the amount of investment.

How much returns can I expect from the market?

A stock portfolio will include multiple stocks. Sometimes, some stocks will perform exceedingly well, while some will not. The portfolio return will be the result of performing and non-performing stocks.

In the bull market, the portfolio will give attractive returns (the benchmark index Nifty gave a return of ~67% from April 01,2020 till December 18,2020. However, during a bad market- the returns can be as low as 1-2% or market returns can also be negative.

 Can a beginner trade in unlisted stocks?

A beginner can trade in unlisted stocks, but financial experts advise against them. As unlisted stocks are not with the market regulating authority – the Securities and Exchange Board of India (SEBI), it is not safe to invest in them.

Can I trade during a bear market?

You can trade during a bearish or low market if you know how to find good stocks and strike the rod when others are too busy selling their shares.

Where can I find the information on a company’s financials?

You can find all the information about a company, including its financial records, Price to Earnings (P/ E) ratio, company size, dividend history, revenue growth, and more, on the verified websites of reputed stock exchanges NSE and BSE. You can also find it on the company’s website.

Will investing in small-cap companies be profitable?

Investing in small-cap companies can be profitable if their prospects and growth potential is promising.

Do I need a Demat account for stock market trading?

A dematerialized (Demat) account is necessary to trade in the stock market as trading shares is now possible and available only online in the electronic or digital form.

Is it wise to trade when the stock market is high?

Most share market purchases are carried out when there is a bull (high) market. As investors are more eager to buy, the stock prices are valued at a higher price. However, you have to be careful not to pay too much for overpriced stocks.

Should I invest in an IPO?

You can invest in an initial public offering (IPO) provided you have done in-depth research on the company going public and offering the shares on sale.

What is the P/E ratio?

The price to earnings ratio is a ratio where a company’s share price is divided by the company’s earnings per share. The P/E ratio gives insight into whether a company’s shares are over or undervalued.