The Indian stock market could be a great place to earn attractive returns and create wealth. In fact, investing in the stock market has now become a popular option among many individual investors, as per a 2019 report by Livemint, a financial daily.
The market also offers a variety of financial instruments, including stocks, mutual funds, futures, options and bonds. This may be confusing for first-time investors. Hence, it is essential to understand the criteria on which you as a novice investor should base your decision.
What are the parameters to consider before investing?
When you are young and just starting, you may not have a lot of money to invest. You will, however, have a higher risk appetite. However, if it is your first time investing in stocks, investing in assets with regular income is better.
You may be able to take on riskier investments if you are in your 30s and have a stable job and career. Hence, you will be able to allocate a greater proportion of your wealth to equity. It is crucial, however, to maintain a balance between investments that are safe and risky.
Investors nearing retirement can benefit from debt investments with low risks and steady returns.
An investor’s risk tolerance is the amount of loss they can tolerate through investment. Investors can be classified into three groups according to their risk appetite: aggressive, moderate and conservative. Aggressive investments are the riskiest, while conservative investments are the safest.
Your financial situation determines the amount of capital you can invest. It also depends on any obligation you may have in future. The surplus you have for investment will affect the type of investment you choose.
Questions to ask yourself as first-time investor
Ask yourself these basic five questions before you go ahead with your investment decision -
- Question 1: What motivated you to start investing in the stock market today? Are you trying to increase your income or simply experimenting with your surplus funds?
- Question 2: Can you handle risk, and do you know how to minimise it when investing?
- Question 3: Did your research include the entry-exit loads, AMC fees, transaction costs? Do you know what those fees entail?
- Question 4: Do you have knowledge about which stocks to buy today, or do you need the help of an expert?
- Question 5: Is there a timeframe by which you expect to earn returns on your investments? Is it for short-term or long-term?
A step towards investments that could work for you
Understanding the criteria and answering the questions above will clarify how to begin your investment journey. As a first-time investor, it is always advisable to reach out to a financial advisor who can curate personalised financial plans that are better aligned with your financial goals, investment horizon and risk appetite.