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Investment made easier…

Posted by shreeharshagp on June 13, 2007

Investment made easier

The general notion is that investing in the stock market is like gambling. However it is a better mode of investment, compared with the investment in savings account or in fixed deposit (FD). Investment in FD, you may earn a return of 8% – 9% (Per annum) depending on the interest rates defined by the government. But if you make a wise investment in equity through mutual funds or directly in shares, you may earn a decent return of 30% – 40% (Per annum) in any condition. Historically, the stock market has had a better rate of return over a bank deposit over the long term, but liquidity is a concern (if you want your money back immediately and the stocks are down, you lose).There are instances where return had crossed 100% of your investment (Thanks to a booming economy!!). 

There are three ways in which you can invest your money in the stock market. First one will be through the stock broker; one invests directly into the equity market (stock market); second one will be through mutual funds, managed by a fund manager and third will be through the ULIP Unit Linked Insurance Plan. ULIPs should be avoided as they have a number of drawbacks  7 reasons to avoid a ULIP

For a novice in the stock market, it would be better to start with mutual funds. And switch over to direct investment in the equity market later. 

A Mutual Fund is a pool of money collected from different investors and managed by a Fund Manger (Expert in stock market investment). At the end of the day this money will enter the stock market, bonds, and money market. 

Advantage of investing in Mutual Fund:

  • Professional management of your money
  • Diversification of investment
  • High return potential
  • Low cost as a fee
  • Transparency in the investment
  • Tax benefits

Things to be considered while selecting a Mutual Fund

  • Entry Load / Exit Load: Entry load is the fee deducted from your investment amount during the time of Mutual Fund purchase. Exit load is the fee deducted while you are selling the Mutual Fund or redeeming your money. Generally the entry load will be 2.25% of your investment amount and exit load is 2.25% to 1% if redeemed within 6 months of investment.
  • Fund Mangers: Fund mangers are the key persons responsible for returns on your investment. His strategy of investment will yield you more money. Keep an eye open on the fund manager when selecting the fund.
  • Systematic Investment Plan (SIP): You can start investing from as low as Rs. 500 / per month. To activate this initially you need to give check with the stated amount. From next month you need not give them cheque, but can be debited automatically through ECS (Electronic Clearing Scheme). Every month on particular day money will be transferred from your bank account to the Fund. Take care that the savings account you link with the fund is the active bank account. If you fail to maintain the amount that will be deducted by the fund, you will be penalized with the amount from Rs. 200 to Rs. 400. When you exit from the MF i.e., redeeming the fund, you will have to fill a redemption form. Make sure that you have given instruction to stop the ECS also.
  • You can go for SIP in Tax saving funds. But the investments made in the first month need to be invested for next 3 yrs min to avail the benefit. Let’s consider that over a period of one year you have invested Rs. 12,000. You can’t redeem (withdraw) entire Rs. 12,000 at the end of 3 yrs. As you have invested every month, redemption will happen every month. i.e. Investment of the month Jan, 2007 can be redeemed on Jan, 2010. Investment of Feb, 2007 can be redeemed on Feb, 2010.
  • and are among the two best sites you can rely on when you select funds. Here they provide details of the funds performance; they rate it on the basis of the returns. It’s also a good source to explore the market and enlarge your horizons.
  • Plan your investment in such a way that, you invest every month the same amount irrespective of market fluctuation. Let’s take an example, every month you will be investing Rs. 2000. Second month the market moves up, as a result the price that you pay to buy stocks / MF will be high. So invest the same amount, but you will buy a lower number of units. Next month the market moves down, as a result the price to own a stock will be reduced. Here you get many more shares for the same money. Thereby you will be investing an average of Rs. 2000 every month. But wisely… cheers…!!!

Note: Investments are subject to market risk, please read the offer document carefully before investing…


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