Stock Market is a term which evokes a spectrum of emotions in different people. Some strongly feel it is only gambling, others feel it is a positive fire way to lose money. A couple of get a at the top of trading in stocks all day long long. Some utilize it wisely to increase their wealth. The fears related to the stock market attended down significantly since the first nineties and now a lot of people feel comfortable purchasing the stock market. This article is specific for Indian investors though the majority of the ideas expressed are universal.
Buying the stock market requires careful study, constant review and quick decisions. Cherry picking a share and keeping yourselves กองทุนบัวหลวง updated about the business and timing your buying and selling can take up a significant part of one’s time. That is where the Mutual Fund industry can lend you their hand. A Mutual Fund is managed by way of a Fund Manager and a team of analysts who take their time to study the stock market and invest your money. It saves you from all the hassles of stock market investing and you also have somebody to look after your money.
The Mutual Fund industry has come a considerable ways since its introduction in India in the first 90s. Mutual Funds provide many different options in accordance with your risk profile to get high tax effective returns. That being said, I would caution readers that purchasing mutual funds also needs a little bit of effort from your own side. Getting into the wrong mutual fund at the wrong time can destroy your wealth. The risks related to purchasing any asset class [Stocks or Gold or commodities or bonds] are applicable to mutual funds also. For the more conservative investor, mutual funds offer experience of fixed income instruments through fixed maturity plan (FMP)/debt funds wherein your cash is dedicated to debt instruments. FMPs/Debt funds are far more tax efficient than direct investment in FDs or bonds/debentures etc. I give below some points that needs to be taken into account while purchasing mutual funds.
a. If you are considering investing money for the short term (1-3 years) and want the best tax efficient return then select Debt funds/FMPs.
b. If you like experience of stock markets then remember that stock market returns can be achieved only over the long term as markets usually see- saws by having an upward bias on the long term. So you could have to stay for over 5 years. Do not check your NAV(Net Asset Value) everyday and feel excited or melancholic because of the erratic movement.
c. There are more than 30 fund houses (AMCs) offering a lot more than 700 schemes. Select the AMCs which were around for a long time (5-10 years would be a good metric). Do not diversify a lot of and adhere to good fund houses. The important points of fund houses are available in the web site of Association of Mutual Funds of India. You can even obtain the rating of every mutual fund on this website. Check always to see if the AUM (Assets under management) is high; this ensures that the Mutual Fund has the flexibleness to take a hit in the event one or two companies that they had dedicated to enter into trouble.
d. Always remember that past performance is not helpful information for future performance. Select consistent performers.
e. Select New Fund Offer [NFO] only during a significant downturn as this enables the fund to get involved with stocks at lower prices. For Debt funds go for NFOs when interest rates start peaking. Do not enter into an NFO because you’re swayed by the smart ad in the media. Usually NFOs give attention to the flavor of the season to tempt you [Commodities, Green Energy, Emerging markets etc].Some may play out; some will die an all-natural death. So exercise abundant caution.
f. The most effective time to start an SIP is when the market starts showing a downward trend and the worst time to panic and stop an SIP is once the stock market switches into deep decline. Actually this is the time when the actual investors rub their hands in glee. So you need to try and increase your SIP amount when the market is actually down and then once the market bounces back you are able to go back to your regular amount. Fix a foundation and set a target – e.g., for each and every 100 point fall in Nifty index increase SIP by Rs. 1000 and reduce exposure similarly as the market bounces back.
g. Do not expect extraordinary returns. On a long haul basis mutual funds give an annual return of 12-15%.
h. Do a review one per year and check out from sectors that you’re feeling have peaked out.
i. It is advised with an SIP in a index fund/exchange traded fund (ETF). An index fund invests in companies that form the specific index. As an example if the index fund is on the basis of the Bombay Stock Exchange (BSE) Sensex, then it invests its funds in the businesses that produce up the index and the NAV tracks the BSE Sensex. This fund will also have a return that closely mirrors the return of the stock market. This can be a very safe way and protects you from individual gyrations in stock price of an organization or sector. The stock exchange will promptly replace an organization from the index in the event it starts underperforming and your fund does the same. So you’re always assured of a return very near to the market return.
j. Do not confuse an insurance product which invests in the stock market with a mutual fund. They are two many different products. Insurance products have high charges and give far lower returns than a mutual fund.
Mutual funds are ideal for those who do not need enough time or patience to take your time and effort needed for successful stock picking. They offer the investor a wide choice of experience of different asset classes and sectors in accordance with risk profile and if chosen wisely can offer extremely satisfying returns to increase wealth.