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How is the opening price of a share determined

How is the opening price of a share determined?

How is the opening price of a share determined?

The Indian stock market works for 5 days from Monday to Friday. The normal trading session is between 9:15 AM to 3:30 PM in both the major stock exchanges of India- BSE, and NSE.

However, before the normal trading session, there is a small pre-opening session from 9:00 AM to 9:15 AM every day. This is the period when the opening price of the shares is decided.

But what happens during this period? And how is the opening price of a share determined?

This is what we are going to discuss in this post. How is the opening price of a share determined? But before we discuss it, there are few basics that you need to know first.

Also read: Stock Market Timings in India.

Types of order:

There are two types of order that you can place for a buying/selling of shares in the share market:

Market Order: It is the order when the stocks are bought/sold at the market price and is executed instantaneously.

For example, assume that you want to buy 10 stocks of a company is currently trading at the market price of Rs 90. When you place the market order, you will buy the stocks at market price i.e. Rs 90.

Limit Order: This order refers to buying or selling the stocks at a limit price.

For the same example stated above, let’s assume that now you want to buy the stocks at Rs 88. Then you can place a limit order and once the market price of the stock falls to Rs 88, the order is executed.

Market order is instantaneous whereas limit orders occur depending on the fulfilment of supply and demand.

Pre-Opening session in a market:

The pre-opening session is divided into three segments- Order collection period, order matching period and buffer period.

Let us understand each one of them in details now.

9:00 AM to 9:08 AM – This session is called Order Collection period. You can place, modify and cancel your order during this time period. However, no execution occurs during this period.

9:08 AM to 9:12 AM – This is called order matching period or trade confirmation order. You cannot place, modify or cancel your order during this interval.

Placed orders are executed during this period based on the price identification method. This is also called equilibrium price determination or Call auction.

9:12 AM to 9:15 AM – This period is called buffer period and is used for easy transition from pre-opening session to normal market session.

Also read: 10 Must Read Books For Stock Market Investors.

How is the opening price of a share determined?

The opening price of the share is determined during the call auction. As soon as the order collection period is over, order matching period starts.

The order matching happens in the following sequence:

  • Eligible ‘limit’ orders are matched with eligible ‘limit’ orders.
  • Residual eligible ‘limit’ orders are matched with ‘market’ orders.
  • ‘Market’ orders are matched with ‘market’ orders.

Now, let us understand how the opening price is decided with the help of an example.

Assume that during the order collection period, following demand (buy orders) & supply (sell orders) were available for different stock prices for a company named ‘ABC’. I had customised a simple table for easy explanation.

Here, you can notice that there are different quantities of demand and supply of stock for different share prices (based on the buy and sell order placed).

Share Price Demand Supply Maximum Tradable Quantity
100 1100 900 900
101 800 1100 800
102 1000 1200 1000
103 500 600 500
104 400 700 400

The opening price is determined based on the principle of demand and supply mechanism. It occurs at the equilibrium price, where the maximum volume (tradable quantity) is executable.

If the above example, the maximum tradable quality was possible at a share price of Rs 102.

Hence, Rs 102 will act as the opening price for the share.

All the outstanding orders, which are not executed in the pre-opening session, will move to the normal market session.

Note: The above table is created in a simple way to let you understand the basics. However, in real time scenarios, there will be tons of volume of  buy and sell orders, making it quite complicated.

Summary:

The equilibrium price determined in pre-open session is determined as the opening price for the share.

Also read: How to Invest in Share Market? A Beginner’s guide

That’s all. I hope this post on ‘How is the opening price of a share determined?’ is useful to the readers.

If you have any doubts, feel free to comment below.

Tags: How is the opening price of a share determined, opening price of a stock, opening price determination, how is stock open price determined, how is the open price of a share determined
Why do stock prices fluctuate?

Why do stock prices fluctuate?

Why do stock prices fluctuate?

Hello Investors. Today, we are going to discuss why do stock prices fluctuate.

Every day you might hear the fluctuations in the stock price. You can read the stock news of last day which says something like HPCL increased 0.7% percent, Yes bank fell 0.35%, Reliance industry was flat with 0.01% in positive. Further, sometimes these fluctuations are shockingly high in a single day like titan moved +18% in one trading session.

Why do these happens? Why do stock prices fluctuate so much? What causes stock prices to change?

It’s really important to understand the reason behind the fluctuations of stock price for success in the stock market.

Why do stock prices fluctuate?

The reason behind the fluctuations of the stock prices is ‘supply and demand’.

Now, let us understand the funda of supply & demand in the stock market.

There are two kinds of people in the market.

  • ‘Supply’ refers to the total number of people who would be willing to sell their shares at any price.
  • ‘Demand’ refers to the total amount of people who are potential buyers and would be willing to buy at any price.

supply and demand- why stock prices fluctuate

The point where the supply and demand meet i.e. all the potential buyers and sellers trade until there is no-one left who agrees on the price is called market equilibrium.

If the number of people who are willing to buy the stock (demand) is greater than the number of people who wants to sell the stock (supply), then the stock price increases.

On the other hand, if the number of people who want to sell the stock (supply) is greater than the number of people who wants to buy the stock (demand), then the stock price decreases.

Although its simple to say that the price fluctuations are due to demand and supply, however, what causes the demand and supply is an interesting topic to understand.

Why people like some stocks and dislike others are due to various reasons which we are going to discuss next.

Also read: #9 Reasons Why Most Indians do not Invest in stocks.

The main reasons that affect the demand and supply of the stock are:

  • Important news regarding the company (either positive, negative or neutral):

If there is a positive news regarding a company, then its demand increases. If the news is negative then the demand decreases and people are trying to sell their stocks. And if the news is neutral, then people can be uncertain.

  • Ideas and strategies of the investors:

I have never met two such investors who agree on every point regarding a stock. Every investor has his own ideas and strategies. Some people may like the stock, while the others dislike (due to various reasons). This difference in the ideas and strategies of the investors also affects the demand for a stock.

  • Psychological factors:

Stock market is run on sentiments and ‘greed & fear’ are the driving force here. When the people are greedy, then the demand increases. When the people are fearful, they want to sell all their stocks and exit which causes an increase in supply. The greed and fear of the people cause the fluctuations in the stock price. Further, all the people are not greedy or fearful at the same time.

  • Earnings of the company:

Earnings are the measure of company’s profitability. Everyone wants to invest in a profitable business. Stock prices shows the present value of the future earnings expectations of the company.

  • Other factors:

There are a number of other variables also that govern the fluctuations in share market. They are- change on government policies (new charges, increase in excise duty, sales tax, annual budget), fluctuations in bank interest rate, domestic and international institutional investors involvement, fluctuations in international indexes like dow jones of US, DAX in Germany, Nikkei in Japan etc, speculations of people, political instability, country’s economic, business conditions etc

Now, that we have understood the reason behind the fluctuations of stock price, let us understand why demand or supply increases in any specific company.

Also read: 10 Must Read Books For Stock Market Investors.

Why demand increases?

Here are the few reasons that causes increase in the demand and makes the people like that stock:

  • Positive news regarding the company (for example new tender, decrease in tax in the industry etc)
  • Strong financial results for the company (like increase in sales, earnings etc)
  • Healthy news from the management like new plant set-up, new acquisition, etc

Why demand decreases?

Here are the few reasons that cause decrease in demand and increase in the supply.

  • Negative news regarding the company
  • Poor financial results/performance in a quarter/year
  • Increase in debts etc

Note: There are a number of financial gurus who have their own philosophy about the stock price. Some believe that it isn’t possible to predict the share price while others argue that they can determine the future price of the stock from the past charts and trends in price movement.

Nevertheless, for the bottom line, whether he is a buyer or seller, both thinks that he is making a good deal. Buyers are optimistic about the stock and believe that its undervalued and have good future potential. Sellers think that the stock is overvalued and cannot give good return in the future.

Summary:

Stock prices fluctuations are a function of supply and demand.

The factors such as earnings, financials, economy and so on may affect the desirability of owning (or selling) the stock.

Also read: How to Invest in Share Market? A Beginner’s guide

That’s all for today. I hope you have understood the logic behind why do stock prices fluctuate.

Further, if you have any other doubt, feel free to comment below.

Tags: Why stock prices change, what causes stock prices to change, why do stock prices fluctuate, how do stock prices change, what makes stock prices change

Full service brokers vs discount brokers: Which one to choose?

Hello Investors. Today we are going to discuss one of the hottest topic in the investing world- Full-service broker vs discount broker and which one to choose? However, before moving forward, let us first understand who is a stockbroker.

Who is a stockbroker?

A stockbroker is an individual/organization who is a registered member of the stock exchange and are given license to participate in the securities market in place of its clients. Stockbrokers can directly buy & sell stocks in the share market on behalf of their clients and charge a commission for this service.

Now, there are two types of stock brokers in India:

  1. Full-service brokers (Traditional Broker)
  2. Discount brokers (Budget brokers)

Let us understand each type of stockbrokers:

Full-Service Brokers (Traditional Brokers)

They are traditional brokers who provide trading, research, and advisory facility for stocks, commodities, and currency. These brokers charge commissions on every trade their clients execute as a percentage of each trade executed. They also facilitate investing in Forex, Mutual Funds, IPOs, FDs, Bonds, and Insurance.

Few examples of full-time brokers are ICICIDirect, Kotak Security, HDFC Sec, Sharekhan, Motilal Oswal etc.

If you need help in opening your stock brokerage account, feel free to check out this awesome website- Nifty Brokers

Discount Brokers (Budget Brokers)

Discount brokers just provide the trading facility for their clients. They do not offer advisory and suits for a ‘do-it-yourself’ type of clients. They offer low brokerage, high speed and a decent platform for trading in stocks, commodities and currency derivatives. A few examples of discount brokers are Zerodha, ProStocks, RKSV, Trade Smart Online, Achiievers, SAS online etc.

Full service brokers vs discount brokers:

Here are the key differences between full service brokers vs discount brokers based on different criteria:

FULL SERVICE BROKERS DISCOUNT BROKERS
Brokerage They charge commission in percentage terms of each trade executed. They offer a flat fee on each trade executed.
Brokerage rates Typically between 0.3 – 0.5% Generally Rs 20 per trade.
Primary Service They provide trading platform along with advisory for investment. They only provide a trading platform (no investment advisory provided).
Suitable for Full service brokers suit those who want advisory for their investment. The discount broker is suitable for those who research on their own or have a financial advisor.
Research Department They have their own research departments for advisory. No such department.
Network They have a large number of branches in different cities. They do not have many branches.
Customer service Face to face customer service available. Online services for customers.
Other Facilities Besides stocks, commodities & currencies, other facilities offered are forex, mutual funds, IPOs, FDs, bonds, insurance, etc Only stock, commodities & current trading available
Add on services Research reports, recommendations, funding, extended margin etc Focuses mainly on trading
3-in-1 Account (Saving+demat +trading) Available Not available
Examples/ Top Brokers ICICI Direct, HDFC sec, Kotak securities, Sharekhan, Motilal Oswal, Angel Broking, Axis direct, Edelweiss, Aditya Birla money etc Zerodha, Prostocks, RKSV, Trade smart online, Tradejini, SAS online etc.

Also read: How to Invest in Share Market? A Beginner’s guide

Which one should you choose?

The answer depends on your knowledge, preference and time. If you want stock advisory for your investment, then you should choose a full-time broker. On the other hand, if you want to do research on your own or you have a financial advisor, then you should choose a discount broker.

Further, you should also consider brokerage charges carefully before selecting your stockbroker.

I will highly recommend you to choose a discount broker (like Zerodha) as it will save you a lot of brokerage amount.

Initially, I started with ICICI direct (which is a full-service broker), but soon realized that it was too expensive compared to the discount brokers. Moreover, I wasn’t using the advisory facility by the ICICI direct. Hence, it didn’t make sense to pay extra brokerage charges even if I can get similar benefits on the cheaper stockbrokers.

I then shifted from ICICI direct to Zerodha.

Zerodha (discount broker) charges brokerage of 0.01% or Rs 20 (whichever is lower) per executed order. This is way cheaper compared than ICICI direct (full-service broker) which asked a brokerage of 0.5% on each transaction. If you buy stocks for Rs 50,000 in ICICI direct, then you have to pay a brokerage of Rs 250 (on the other hand, Zerodha will ask only Rs 20, a difference of Rs 230).

Also read: Different Charges on Share Trading Explained- Brokerage, STT & More

In addition, as this amount is charged on both sides of the transaction (buying & selling), hence you have to pay a total of Rs 500 for the complete transactions (way too expensive compared to a total brokerage of Rs 40 on both sides of transactions in Zerodha).

In short, if you are new to investing and want to open a trading account, I would recommend choosing discount brokers, so that you can save lots of brokerages.

Related Post: How to Open a Demat and Trading Account at Zerodha?

However, in the end, it’s your knowledge, preference and time that matters the most while selecting a stockbroker. If you have enough knowledge and time for your stock research and prefer not to pay an extra commission, then you should go for a discount broker. On the contrary, if you do not mind paying extra commission for the advisory services to save your time, you can select a full-service broker.

If you are new to stock market and want to learn the basics from scratch, here is the best selling book that I highly recommend you to read: How to Avoid Loss and Earn Consistently in the Stock Market by Prasenjit Paul

That’s all for this post. I hope you have understood the difference between full service brokers vs discount brokers. Further, if you have any doubts, do comment below. I will be happy to help you out. Happy Investing.

How Many Stocks Should you own for a Diversified Portfolio?

Hi Investors. Today, we are going to discuss- How many stocks should you own for a diversified portfolio? How many stocks are too few and how many stocks become too many?

In general, there is no correct answer to this question and the answer varies according to your investment goals. However, there are few thumb rules for defining the number of stocks in your portfolio. We will discuss them in this post. But first, we should understand the meaning of a diversified portfolio.

What is a diversified portfolio?

A diversified portfolio is investing in different stocks from dissimilar industries/sectors in order to reduce overall investment risk and to avoid damage to the portfolio by the poor performance of a single stock.

For getting good returns from your investments, it’s important that your stock portfolio is well diversified. Both under diversification and over-diversification is adverse for an investment.

  • Under diversified portfolio has more risk as the poor performance of a single stock can have an adverse effect on the entire portfolio.
  • On the other hand, over-diversified portfolio gives low returns and even good performance of a single stock will lead to a minimum positive impact on the portfolio.

As a thumb rule, as the number of stocks in the portfolio increases, the portfolio becomes more diversified, and risk decreases (but profit on the portfolio may be lower).

In a similar way, as the number of stocks in the portfolio decreases, the portfolio becomes under-diversified, and risk increases (but profit on the portfolio may be higher).

Also read: How to create your Stock Portfolio?

How many stocks should you own for a diversified portfolio?

  • Minimum 3 stocks from different industry:

There should be at least 3 stocks from dissimilar sector/industries in your portfolio.

  • Maximum number of stocks should be 20:

The maximum number of stocks in any retail investor’s portfolio should be 20. If the number of stocks becomes greater than 20, then it becomes counterproductive for the portfolio. Although the risk decreases but the profit margin will also decrease. The impact of a single stock in the portfolio will be minimal.

Note: Here the number of stocks in a diversified portfolio is suggested for an investment over Rs 10,000. If you’re investing lesser amount, then your stock portfolio can be different.

Read more here: How To Invest Rs 10,000 In India for High Returns?

Diversification is a good method to safeguard your portfolio during market correction or a bear market. All the stocks in your portfolio will not perform poorly at once and even the poor performance of few stocks will be canceled out with your good performing stocks.

However, the diversified portfolio does not act as a shield for your portfolio during recession or market crash. During 2008 market crash, when Sensex fell over 60%, then even the well-diversified portfolios weren’t able to safeguard the investor’s portfolio.

Other points to note:

  • Rebalance your portfolio regularly: Sometimes one of your stock might be performing extremely well and can become a major contributor in your portfolio. In such cases, rebalance your portfolio so that it can remain diversified.
  • Hold the winners and Cut the losers: Do not hold the underperforming stock too long just to keep your portfolio diversified. Sell the losing stocks and re-organize your portfolio.

Also read: How to follow Stock Market?

Conclusion:

In general, a retail investor should hold stocks between 3 to 20 from dissimilar industries/sectors. However, 8-12 stocks are sufficient in your diversified portfolio.

That’s all. I hope this post on ‘How many stocks should you own for a diversified portfolio?’ Is useful to the readers.

If you have any doubts regarding your portfolio, please comment below. Invest smart, invest long.

How to Invest in Share Market? A Beginner’s guide cover

How to Invest in Share Market? A Beginner’s guide

Hi Investors. Today we are going to discuss one of the most basic topics for a beginner- How to invest in share market? I have been planning to write this post for a number of days as there are many people who are willing to invest, however, do not know how to invest in share market.

Please note that this post might be a little longer as I am trying to cover all the basics that a beginner should know before entering the stock investment world. Make sure that you read the article till the end, cause it will be definitely worthwhile reading it.

Pre-requisites:

For investing in the Indian stock market, there are few pre-requisites that I would like to mention first. Here are the few things that you will need to invest in share market:

  1. Savings account
  2. Trading and demat account
  3. Computer/laptop/mobile
  4. Internet connection

(Thanks to Reliance Jio, everyone has 4G internet connection now.. 😀 )

For opening a demat account, the following documents are required:

  1. PAN Card
  2. Aadhar card (for address proof)
  3. Passport size photos
  4. Canceled cheque/Bank Passbook

You can have your savings account in any private/public Indian bank.

Where to open your trading and demat account?– This will be discussed later in this post on the section ‘choose your stock broker’ (STEP 5).

Get your documents ready. If you do not have a PAN card, then apply as soon as possible (if you are 18 years old or above).

The basic advice that you need before starting investing:

When you are new to the stock market, you enter with lots of dreams and expectations. You might be planning to invest your savings and make lakhs in return.

Although there are hundreds of examples of people who had created huge wealth from the stock market, however, there are also thousands who didn’t.

Here are few cautionary points for people who are just entering the world of investing.

Pay down your debts first:

If you have any kind of debts like education loan, credit card dues, car loan debts etc, then pay them first. There is no point of wasting your energy to give all the returns you made from the market as interests of your debts. Pay down your debts before entering the market.

Invest only your additional/ surplus fund:

Stop right there if you are planning to invest your next semester tuition fee, next month flat rent, savings for your daughter’s marriage which is going to happen next year or any similar reasons.

Only invest the amount that won’t affect your daily life. In addition, investing in debts/loans is really a bad idea, especially when you are new and learning how to invest in share market.

Keep some cash in hand:

The cash in hand doesn’t just servers as your emergency fund. It also serves as your key to freedom. You can take big steps like changing your little flat, or quit your annoying job or simply shifting to a new city, only when you have cash in hand.

Do not get trapped by investing all your money and later losing your freedom. Do not sacrifice your personal freedom in the name of financial freedom.

Now that you have understood the pre-requisites and the basics, here are the 6 steps to learn how to invest in share market on your own. Do follow the step sequences for an easy approach to enter the stock market world.

How to invest in share market?

Step 1: Define your investment goals:

investment goal

It’s important to start with defining your investment goals. Start with end goals in mind. Know what you want.

The time frame for different investment goals will be different. Your goal can be anything like buying a new house, new car, funding your higher education, marriage, retirement etc.

If you are investing for your retirement, then you have a bigger time frame compared to if you are investing for your higher education. When you know your goals, you can decide how much you want and for how long you have to remain invested.

Also read: Why Goal-Based Investing?

Step 2: Create a plan/strategy

Now that you know your goals, you need to define your strategies. You might need to define whether you want to invest in the lump sum (a large amount at a time) or by SIP (systematic investment plan).

If you are planning for SIP, define how much you want to invest monthly. (Related post: SIP or Lump sum – Which one is better?)

Step 3: Read some investing books.

There are a number of decent books on stock market investing that you can read to brush up the basics. Few good books that I will suggest the beginners should read are:

Besides, there are a couple of more books that you can read to build good basics of the stock market. You can find the list of ten must-read books for Indian stock investors here.

Step 4: Choose your stock broker

Deciding an online broker is one of the biggest steps that you need to take. There are two types of stock brokers in India:

  1. Full-service brokers
  2. Discount brokers

• Full-Service Brokers (Traditional Brokers)

They are traditional brokers who provide trading, research, and advisory facility for stocks, commodities, and currency. These brokers charge commissions on every trade their clients execute. They also facilitate investing in Forex, Mutual Funds, IPOs, FDs, Bonds, and Insurance.

Few examples of full-time brokers are ICICIDirect, Kotak Security, HDFC Sec, Sharekhan, Motilal Oswal etc

• Discount Brokers (Budget Brokers)

Discount brokers just provide the trading facility for their clients. They do not offer advisory and hence, suits for a ‘do-it-yourself’ type of clients. They offer low brokerage, high speed and a decent platform for trading in stocks, commodities and currency derivatives.

Few examples of discount brokers are Zerodha, ProStocks, RKSV, Trade Smart Online, SAS online etc.

Read more here: Full service brokers vs discount brokers: Which one to choose?

I will highly recommend you to choose discount brokers (like Zerodha) as it will save you a lot of brokerage charges.

I initially started with ICICI direct (which is a full-service broker), but soon realize that it was too expensive when compared to discount brokers. It doesn’t make sense to pay extra brokerage charges even if you get the similar benefits. (Related Post: Different Charges on Share Trading Explained- Brokerage, STT & More)

Zerodha (discount broker) charges brokerage of 0.01% or Rs 20 (whichever is lower) per executed order on Intraday, irrespective of a number of shares or their prices. For delivery, there is zero brokerage charge in Zerodha.

This is way cheaper compared than ICICI direct (full-service broker) which asks a brokerage of 0.55% on each transaction. If you buy stocks for Rs 50,000 in ICICI direct, then you have to pay a brokerage of Rs 275 (for delivery trading). [Learn what is Intraday and delivery here.]

Further, as this amount is charged on both sides of the transaction (buying & selling), hence you have to pay a total of Rs 550 for the complete transactions in ICICI direct (way too expensive than Zerodha).

In short, if you are planning to open a new trading account, I would recommend opening accounts in discount broker such as Zerodha so that you can save lots of brokerages.

Related Posts:

Step 5: Start researching common stocks and invest.

Start noticing the companies around you. If you like the product or services of any company, dig deeper to find out more about its parent company, like whether it is listed on the stock exchange or not, what is its current share price, etc.

Most of the products or services that you use in day to day life — From soap, shampoo, cigarettes, bank, petrol pump, SIM card or even your inner wears, there is a company behind everyone. Start researching about them.

For example- if you’ve been using HDFC debit/credit card for a long time and satisfied with the experience, then investigate further about HDFC Bank. The information of all the listed companies in India is publicly available. Just a simple google search of ‘HDFC share price’ will give you the following pieces of information.

Similarly, if your neighbor bought a new Baleno car lately, they try to find out more about the parent company, i.e. Maruti Suzuki. What other products it offers and how is company performing recently- like how are its sales, profits, etc.

You do not need to start investing in stocks with hidden gems. Start with the popular large-cap companies. And once you are comfortable in the market, invest in mid and small caps.

Also read:

Step 6: Select a platform to track your performance

You can simply use an excel sheet to track the stocks.

Make an excel sheet with three tables containing:

  1. The stocks that you are interested in and need to study/investigate,
  2. Those stocks that you have already studied and found decent,
  3. Miscellaneous stock- for the other stocks that you want to track.

This way, you can easily follow the stocks.

Further, there are a number of financial websites and mobile apps that you can use to keep track of the stocks.

Related post: 7 Best Stock Market Apps that Makes Stock Research 10x Easier.

Step 7: Have an exit plan

Its always good to have an exit plan. There are two ways to exit a stock. Either by booking profit or by booking loss.

If your investment goals are met, then you can exit the stocks happily. Further, if the stock has fallen under your risk appetite level, then again exit the stock. Also, keep in mind the time frame till which you want to remain investing before exiting.

It’s really important that you know how to take out your money.

Also read: What are the capital gain taxes on share in India?

There were the 7 steps that will help you learn how to invest in the share market. Now, here are a few other important points that every stock market beginner should know:

Additional points to take care of.

1. Start small:

Do not put all your money on the market in the beginning. Start small and test what you have learned. You can start even with an amount of Rs 500 or 1000. For the beginners, it’s more important to learn than to earn. 

You can invest in large amount once you have more confidence and experience.

2. Diversify your portfolio:

It’s really important that you diversify your portfolio. Do not invest all in just one stock. Buy stocks from companies in different industries.

For example, two stocks of Apollo Tyres and JK Tyres in your portfolio won’t be called as a diversified portfolio. Although the companies are different, however, both companies belong to the same industry. If there is a recession/crisis in tyre sector, then your entire portfolio might be in RED.

A diversified portfolio can be something like Apollo tyres and Hindustan Unilever stocks in your portfolio. Here, Apollo Tyres is from Tyre industry and Hindustan Unilever is from FMCG industry. Both the stocks are from different industry in this portfolio and hence is diversified.

Also read: How to create your Stock Portfolio?

3. Invest in blue chip stocks (for beginners):

These are the stocks of those reputed companies who are in the market for a very long time, financially strong and have a good track record of consistent growth and returns in the past many years.

For example- HDFC banks (leader in the banking sector), Larsen and turbo (leader in the construction sector), TCS (leader in the software company) etc. Few other examples of blue-chip stocks are Reliance Industries, Sun Pharma, State bank of India etc.

These companies have a stable performance and are very less volatile. That’s why blue-chip stocks are considered safe to invest compared to other companies.

It’s recommendable for the beginners to start investing in blue chips stocks. As you gain knowledge and experience, you can start investing in mid-cap and small-cap companies.

Also read: What are large-cap, mid-cap and small-cap stocks?

4. Never invest in tips/advice:

This is the biggest reason why people lose money in the stock market. They do not carry enough research on the stocks and blindly follow their friends/colleague’s tips and advice.

The stock market is very dynamic and its stock price and circumstances change every second. Maybe your friend has bought that stock when it was underpriced, however now it’s trading at a higher price range. Maybe, your friend has a different exit strategy than yours. There are a number of factors involved here, which may end up with you losing the money.

Avoid investing in tips/advice and do your own study.

5. Avoid blindly following the crowd:

I know a number of people who have lost money by blindly following the crowd. One of my colleague invested in a stock just because the stock has given double return to another of my college in 3 months. He ended up losing Rs 20,000 in the market just because of his blind investing.

Related post: 6 Reasons Why Most People Lose Money in Stock Market

6. Invest in what you know and understand:

Will you buy ABC company which produces Vinyl sulphone easter and dye intermediates even though you have zero knowledge of the chemical industry?

If you will, then it’s like giving some stranger 1 lakh rupee and expecting him to return the money with interests.

 If you are lending money to someone, you ask a number of questions like what he does, what is his salary, what is his background etc.

However, while investing Rs 1 lakh in a company which people do not understand, they forget this common logic.

7. Know what to expect from the market:

Do not set unrealistic expectations for the stock market. If you want to make your money double in one month, from the stock market, then you have set your expectations wrong.

Have a logical expectation form the market.

People are happy with 4% simple interest from the savings account, but a return of 20% in a year sounds underperformance for them.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

8. Have discipline and follow your plan/strategy:

Do not get distracted if your portfolio starts performing too well or too bad in the first few months of investing. Many people increase their investment amount just in few weeks if they see their stock doing too well, and ends up losing in long run.

Similarly, many people exit the market soon and are not able to get profits when their stocks start performing.

 Have discipline and follow your strategy.

9. Invest regularly and continuously increase your investment amount:

The stock investment gives the best returns when you invest for long term. Do not invest in lump sump at just one time and wait for the next 10 years to see how much returns you got. Invest regularly whenever you get a good opportunity. 

Further, increase the investment amount as your savings increases.

10. Continue your education:

Keep learning and keep growing. The stock market is a dynamic place and changes continuously. You can only keep up with the stock market if you also continue your education.

Besides, there are a number of more lessons which you will learn with time and experience.

Ready to start your journey to become a succesful stock market investor? If yes, then here’s an amazing course for newbie investors: HOW TO PICK WINNING STOCKS?

That’s all for this post on how to invest in the share market. I hope this is helpful to the readers. If you have any doubts, feel free to comment below.

ow to monitor your stock portfolio COVER

How to Monitor Your Stock Portfolio?

How to monitor your stock portfolio?

Hola Investors. Today I am going to teach how can monitor your stock portfolio in an easy and effective way.

First, let me clarify that in this post we are going to learn how to monitor the performances of the holding stock in your portfolio.

We are not going to discuss how to track your profits or how much money you have made from the market. There are a number of financial websites and apps that you can use to track your profits or losses.

Here we are going to discuss how to monitor the performance of the holding stocks. How is the company doing? Is the company’s performance improving or declining?

This post has nothing to do with the stock price movement, but to monitor the company’s performance and growth.

As creating a good stock portfolio is important, similarly, it’s equally important to monitor the performance of the holding stocks in your portfolio.

Quick Tips:

There are few tips that I would like to give you first before we start discussing how to monitor your stock portfolio. They are:

1. You do not need to check the stock prices daily:

Until you are involved in Intraday trading, checking the stock price daily won’t help you much. It’s a lot easier and stress-free if you do not check the prices of your stocks daily.

2. Moreover, do not calculate your net profit/loss daily:

The stock market is dynamic and the stock prices change every second. And hence, there is again no use to check your net profit/loss daily.

3. ‘Buy & hold’ is old:

If too much involvement is wrong, in the same way, extra ignorance towards your stocks is also bad. Do not trust blindly on your holding companies. ‘Buy and hold’ strategy has few loopholes and you need to monitor even your best performing stock.

4. Look at unexpected changes:

If there is a drastic rise/fall in the price of any of your holding stock, then you need to investigate the reason behind it.

Now that you have understood the quick tips, lets us study how to monitor your stock portfolio.

How to monitor your stock portfolio?

1. Read the important news about the company:

Keep updated with the latest happenings of the company and the industry. There are a number of factors that can affect the company which can be both domestic (government norms, taxes, duties etc) and international (Currency exchange rates, crude oil, war scenarios etc).

To keep updated with the news you can set google alerts for the companies in your portfolio. All the news related to the company will be directly sent to your email inbox.

Learn how to set google alerts here.

Further, you can also read important news on few financial websites like money control and screener if you create your portfolio on it. These sites will notify you about the news regarding the company.

Also read: 7 Best Stock Market Apps that Makes Stock Research 10x Easier.

2. Check the quarterly results of the company:

Every company in India releases its results quarterly i.e. 4 times in a year. Typically, a company releases its results within 45 days after the end of every quarter (March/June/September/December).

Study the quarterly results of the company in your portfolio. If the results are good, then enjoy. However, if the result is bad, then do not get influenced by the loss of the company in just one quarter. In any business, there will be losses sometimes. What matters is the consistency. Nevertheless, if the company is continuously giving bad results, then you need to reconsider about the stock.

3. Read the annual results:

Company’s annual reports are the best way to evaluate its performance. Using the annual reports, you can compare the company’s performance with its past to check its growth. You can also read the company’s future plans and strategy in the annual result.

Also read: How to do Fundamental Analysis on Stocks?

4. Keep an eye on Corporate announcements:

Read the corporate announcements to remain updated with corporate actions of the company like new acquisition, merger, appointment or resignation of senior management etc. This information can also be found on the company’s website.

5. Monitor the shareholding patterns:

You also need to check the shareholding pattern of the company, mainly the promoters shareholdings.

An increase in the shares of the promoters is a healthy sign. Promoters are the owners of the company and they have the best knowledge of the company. If they are confident about its future growth, they are usually correct.

However, if the shareholding of the promoters is continuously declining, then it’s a bad sign. Investigate further why the promoters are selling their stake.

Besides, do not get afraid if mutual funds, FII, DII are buying/selling the stocks. They buy the stocks on the availability of funds.

Related post: 7 Must Know Websites for Indian Stock Market Investors.

6. Check the promoter’s pledge of shares:

Promoters pledge of share is always a sign of caution. If the pledging is continuously increasing, then be aware. You can check the promoter’s pledge of share on the company’s website.

Although it takes few efforts and time to continuously monitor the stocks in your portfolio, however, it’s worthwhile doing it.

Nevertheless, if you have less number of stocks in your portfolio, say 8-10, then it won’t take much time to monitor your portfolio.

Moreover, the Google alerts and mobile app notifications have made the life of investor lot easier. You can read most of the news and information on your mobile without much effort now.

If you are new to investing and want to learn stock market from scratch, here’s an amazing course for the beginners: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS.

That’s all. I hope this post on how to track your stock portfolio is useful to the readers.

If you have any doubts, do comment below. I reply every one of them.

Tags: How to monitor your stock portfolio, how to monitor stock performance, how to track your stocks, portfolio monitoring, how to monitor your investment portfolio
SENSEX IN LAST 30 YEARS

75x Returns by Sensex in last 30 Years of Performance.

75x Returns by Sensex in last 30 Years of Performance:

Hi Investors. Today I have brought an interesting insight for the investors. We are going to discuss the Sensex performance in the last 30 years. So, let’s get started.

SENSEX IN LAST 30 YEARS:

Here is the data of Sensex for the last 30 years.

YEAR SENSEX (Closing Pts) 
1987 442
1997 3,658
2007 20,286
2017 33,573

You can get this data from BSE India website using this link.

Here is the chart of Sensex in last 30 years till date.

Sensex in last 30 years of performance

Chart Source: https://tradingeconomics.com/india/stock-market

From the above data, you can notice that Sensex has given multifold returns in the last 30 years. From a mark of 442 in 1987, Sensex is currently at an all-time high with 33,573 points (November 2017).

The BSE index has given an astonishing return of 75 times in its last 30 years.

In short, an investment of 10 lakhs in the BSE Index fund 30 years back, would have turned out to be 7.5 crores by now.

Note: If we compare this return with 4% p.a. returns from the savings account, we will get just 22 lakhs net amount in 30 years.

Overall, Sensex has turned out to be a wealth creator for those who invested in the market in time. Those who invested even in the index fund of Sensex in last 30 years, would have been sitting on a huge pile of wealth in the age of their retirement.

Nevertheless, those who missed this rally should not be disappointed and should invest in the market on suitable opportunities.

Moreover, they should invest actively by becoming an investor rather than a trader or side walker (short-term investor).

Currently, the market is at an all-time high. However, this should not stop the investors from investing in SIPs even if there might be a correction in the market in near future.

Also read: SIP or Lump sum – Which one is better?

Invest for the long term as it has always turned out to be a wealth creator for most of the investors. Long-term investments tend to reward its investors eventually.

For a short term, there will always be fluctuations in the market. If we study the last financial year 2016-17, we can notice that there were a couple of swings in the market due to multiple reasons like demonetization, US Presidential election, Implementation of GST etc.

If you invest for the short term, there will be volatility due to the domestic or global factors.

However, for the long term, bulls become in charge if you have invested in the fundamentally right stock.

Also read: 10 Must Read Books For Stock Market Investors.

India is growing at a very decent pace and in the next 3-5 years it will turn out to be a rising star in the world. I am highly optimistic about the growth of the Indian economy and suggests the investors remain invested in the market for long term.

There is a famous quote used by Motilal Oswal Group that I would like to quote here:

Buy Right, Sit Tight.

Also read: How To Invest Rs 10,000 In India for High Returns?

That’s all for this post about past performance of Sensex in last 30 years. I hope this insight is helpful to the investors.

Do comment below what are your expectations from Sensex in the upcoming year of 2018?

Why Most Indians do not Invest in stocks

#9 Reasons Why Most Indians do not Invest in stocks.

#9 Reasons why most Indians do not invest in stocks:

Hi Investors. Today we are going to discuss why there is less participation of common people in Indian stock market. So, let’s get started!!

I was recently talking with one of my friend, Gaurav who works in a big multinational company. Gaurav didn’t know that nifty has reached its all-time high this Tuesday until I told him so.

Later same day during lunch, when I informed one of my colleagues, Ashish, that nifty has crossed 10k points, he didn’t show any sign of excitement or interest.

In reality, most Indians are like Gaurav and Ashish. They have little or next to zero knowledge/information of stock market.

When Mr. Narendra Modi became the prime minister of India in may 2014, the whole India including the stock market, seemed to roar. The NSE index nifty has given an astonishing return of over 42% since coming of PM Modi in the central government.

Although the stock market has welcomed our PM with a bullish trend, however, it didn’t seem to motivate the participation of common people in the market as much as anticipated.

In India, around 98% population has nothing invested in the stock market. Hardly 2% population of Indians invests in the market with the majority of only two states: Gujarat & Maharastra, out of 29 states.

Related post: Majority of states have very few stock market investors 

If we compare the participation of the common people in stock market around the world, we can find that India’s participation percentage is even below the average. In China, around 10% population of the common people participates in the stock market. Further, in the USA, this percentage is as high as 18%.

Nevertheless, what really worries about the participation of the Indian investors in the market is its minimal growth. The percentage of investors participating in the market currently, is same as 2 decades earlier (in the 1990s). The governing bodies have not been able to attract more retail investors to invest in equity market.

Even in 2017, stock market investing is considered as the rich guy’s games. Most of the retailers who invest in stocks are bankers, businessmen, engineers, lawyers etc, whose average monthly income are in six figures.

Indian stock market is over 140 years old and still, people are searching for reasons that why most Indians do not invest in stocks.

In this post, I’m going to give 9 common reasons why most Indians do not invest in stocks. Make sure that none is stopping you from investing in the Indian stock market.

Further, please mention in the comment box which reason you think is mostly responsible for less participation of common people in Indian stock market.

9 Reasons why most Indians do not invest in stocks.

1. Lack of awareness:

unawareness

Many of the people are unaware towards stock investing. They do not know how much returns they can get by investing in stock market.

A common villager doesn’t know how to earn from stocks and doesn’t understand the power of compounding.

A local retail shop owner does not know what is a demat and trading account.

An old small town electrician hasn’t ever met an investor or trader in his entire life.

This is all because of lack of awareness. In short, unawareness is one of the biggest reasons why most Indians do not invest in stocks.

2. Common Investing myths in India:

MYTHS VS FACTS

Since childhood, everyone hears about how his uncle/cousin/neighbor etc who has lost his entire fortune in the stock market. Stock market investing is considered as gambling in India.

Many people do not invest in the market because they follow the famous investing myths prevailing in the society.

Few of the famous stock market myths which stops a common person from investing in stocks are:

  • Investors who invest on their own are intelligently gifted.
  • Paying a profession is better than making your own investing decisions
  • Investing on your own is very risky etc.

Related post: 7 Most Common Stock Investing Myths.

These myths are the biggest barrier to common people and stock market and a reason why most Indians do not invest in stocks.

New to stock market? Here is an amazing book on Indian stock market for beginners which I highly recommend to read: How to Avoid Loss and Earn Consistently in the Stock Market by Prasenjit Paul.

3. Not willing to take the risk:

risks stock market

The risk is always involved in stock market no matter how many studies you have done and how fundamentally strong the company is. Most of the conservative Indians are not willing to take a risk on their hard earned money and considers 4% return from the savings account as safe. They will only invest if they are assured that their investment is 100% risk-free, which stock market never is. The risks involved in the market stops these people from investing in stocks.

Also read: Is Indian stock market Risky to Invest?

However, one always has to take some risks in order to get some reward. Remember- ‘No Risk, no reward’. Further, there is a famous quote by Warren Buffett that I would like to quote here:

‘Stock market investing is about minimising risks, not avoiding it.’

4. Lack of knowledge/guidance:

lack of knowledge

There is also a segment of people who are willing to invest in stock market but are unable to invest because of lack of knowledge or proper guidance.

They do not know where to start. There is no proper platform for these people to learn about stock market investing. Lack of knowledge stops these segments of people from investing in the Indian stock market.

5. No security in exchanges:

There are a number of past scams in the market. The Indian stock market has got a bad name due to scandals like that of Harshad Mehta and Ketan Parekh.

An Even big company like ‘SATYAM’ was involved in frauds and looting their investors.

Although after coming to SEBI (Securities exchange board of India), these scams numbers have reduced. However, there are still many fraudsters present in the Indian market who tends to make money by cheating innocent investors.

Because of the lack of proper securities in the market, many common people tend to stay away from the market. And this is one of the key reason why most Indians do not invest in stocks.

Also read: 3 Most Common Scams in Indian Stock Market That You Should be Aware of.

6. No proper courses:

There are very few dedicated courses on the stock market. Although NSE and BSE provide few certificate courses, that’s not even close to fulfilling the requirements of the interested aspirants.

Even many MBA, BBA, or BCOM degrees don’t have proper courses on investing/trading.

Ready to start your stock market journey? Check out our amazing course for newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS

7. Lack of capital:

In 2012, the Indian government stated that 22% of Indian population is below its official poverty limit. The latest poverty line is targeted at Rs 32 in villages, Rs 47 in cities. Read more here.

When a majority of the population are struggling to meet even the basic needs of life, there it’s logical that the percentage of people with surplus cash to invest will be low. Lack of capital is a major reason why most Indians do not invest in stocks.

8. Unwillingness:

“I don’t have time” – a common statement among the 9-to-5 working people in India, unwilling to take charge of their financial future.

A majority of the population are either too busy in their day job or are ignorant towards investing. They always delay investing in the market, considering they will do so in future. This unwillingness or laziness among the people is a big reason for less participation of Indians in the stock market.

9. Preference towards physical assets like land, gold etc:

People still have a love for gold, lands, FDs etc. Many people consider investing in Real Estate, gold etc easier in India compared to paper assets, as this has been traditionally followed.

Investing in a land in your village, or buying gold jewelry form your local jeweler shop seems simple compared to opening a trading account which will further require the access to internet, computers etc. The natural tendency of Indians towards physicals assets is a big rationale for poor participation in the stock market.

Additional Reasons:

There are many people who enter the market just to try their luck. Once these people lose money in stocks, they practically leave the market forever. These inappropriate ways of investing reduce the total number of active investors/traders in India.

Although, there are few other reasons also like lack of accessibility, low earning of people, volatility etc, however, the main points are covered in the post.

Also read: 6 Reasons Why Most People Lose Money in Stock Market

That’s all. I hope this post on ‘#9 Reasons why most Indians do not invest in stocks’ is useful to the readers.

Further, if there is any other reason which is stopping you from investing in Indian stock market, do comment below.

Invest smart, Invest long.

Fundamental vs Technical Analysis of Stocks cover

Fundamental vs Technical Analysis of Stocks

Fundamental vs Technical Analysis of Stocks in Indian stock market:

There are two common approaches to pick a stock. The first is fundamental analysis and the second is technical analysis. However, fundamental analysis and technical analysis follow a completely different route to pick stocks.

Both fundamental analysis and technical analysis can be used to determine if an investment in stock is attractive or not and to further forecast the future trends of stocks.

For example, if you are evaluating 10 stocks and want to determine which one you should purchase, then you can use either of fundamental vs technical analysis of stocks.

Fundamental analysis checks how healthy the company is compared to its competitors and economy. It studies everything related to the company like its financial statements (Balance sheet, profit loss statement etc), management, competitors, products, economy, industry etc.

Related Post: How to do Fundamental Analysis on Stocks?

On the other hand, technical analysis does not care about the financials or the industry. It evaluates the company based on past trends, prices & volumes. Technical analysts use stock charts to identify future trends and patterns.

technical analysis

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What is the Intrinsic Value of a company?

“The intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors.” – Investopedia

In short, the Intrinsic value is the true value of a company.

Fundamental analysts believe that the current stock price of a company may or may not be same as its intrinsic value.

They evaluate companies to find which one is trading below its true intrinsic value using different studies like financial statements analysis, stock valuation, economy analysis etc.

Once they find a company which is trading below its intrinsic value (also considered as undervalued stock), they hold this stock until it reaches its true value. A stock trading below its intrinsic value is considered a good investment opportunity.

Overall, the approach followed in fundamental analysis is to find the intrinsic value of stocks.

If you want to learn fundamental analysis from scratch, I would highly recommend you to read this best selling book- ‘The Intelligent Investor’ by Benjamin Graham. Warren Buffett considers it as the best book ever written on investing.

On the other hand, Technical analysts believe that there is no use to analyze companies intrinsic value as the stock price already reflects all relevant info.

They do not care about the financials of a stock. They predict the future performance of a stock based on its past stock price trends.

If you want to study more about the technical analysis approach, here is a great book to start- ‘A random walk down wall street’ by Burton Malkiel.

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Fundamental vs Technical Analysis of Stocks: Basic Comparisons

Now that we have little understanding of both fundamental vs technical analysis of stocks, let us discuss both there methodologies in details.

Here, we will compare fundamental vs technical analysis of stocks based on different criteria.

1. Basic Principle:

Fundamental analysis analyses all the factors that can affect the stock price of a company in the future like financials, management, industry etc. It evaluates the intrinsic value of the company to find whether the stock is under-priced or over-priced.

Technical analysis reads the past charts, patterns and trends of the stocks to predict its future price movement.

If you want to study value investing for Indian stock market, here is an amazing book which I personally recommend you to read: Value investing and behaviourial finance- Insights into Indian stock market realities by Parag Parikh.

2. Time Frame:

Fundamental analysis approach is used for long-term investments.
Technical analysis approach is used for short-term investments.

3. Data Sources:

Fundamental analysis gathers data from financial statements of the company along with other economic news sources.

Technical analysis gathers data from the stock charts.

4. Indicators:

Fundamental analysis studies assets, liabilities, earnings, expenses etc. It also uses various fundamental indicators like PE ratio, PB ratio, debt/equity ratio, ROE etc

Technical analysis uses charts like candle sticks, price data etc. Various technical indicators that are commonly used are MACD, Simple moving average, EMA, RSI etc.

Also read: The Fundamentals of Stock Market- Must Know Terms

5. Methodology Used:

Fundamental analysis studies the financial data like balance sheet, profit and loss statements and cash flow statements. It also examines other factors while evaluating stocks like competitors, company’s management, industry, economy etc. Fundamental analysis focuses on both past performance and future potential.

Technical analysis studies the market movement and public psychology. It is mostly the analysis of the past price movements of the stock. Technical analysis focuses on the performance chart and the trends of the stock.

6. Strategy:

Fundamental analysis is used to find the intrinsic value of the company to evaluate whether the stock is over priced or under priced.

Technical analysis is used to find the right entry and exit time from the stock.

New to stock market? Check out the upcoming course on ‘How to pick winning stocks?’ here.

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Fundamental Analysis- Pros and Cons:

PROS:

  • Fundamental analysis invests for the long-term and their returns are quite huge. Power of compounding is applied to the long-term investments resulting in good returns to the investors.
  • They invest in financially sound companies which is always a good approach.

CONS:

  • Fundamental analysis is quite laborious and its methodology is lengthy & complex.
  • There is no clear time frame for long term investment.
  • As the future potential of the company is considered in the fundamental analysis, various assumptions are made in this approach.
  • As the entry & exit time is not specified in fundamental analysis, you might buy a good stock at a bad time.

fundamental vs technical analysis of stocks

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Technical Analysis- Pros and Cons:

PROS:

  • Technical analysis is fast and the outcomes can be seen quite early.
  • This approach is comparatively less laborious.
  • Entry and exit time for the stock can be specified.
  • Technical indicators readily give buy or sell indication.

CONS:

  • As there are a number of technical indicators, it’s tough to select a good indicator.
  • As technical indicators do not study the financials, you might be investing in a financial unhealthy company.
  • Technical analysis skill requires a lot of accuracy, reliability, and discipline.

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Can fundamental and technical analysis be used together?

Yes, fundamental analysis and technical analysis can be used together. Many investors/traders use both the approaches. It makes sense to enter in a fundamentally strong company at a right time. While fundamental analysis helps to find a healthy company to invest, technical analysis tells you the right time to enter or exit that stock.

In short, you can use both fundamental and technical analysis of a stock together.

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Conclusion:

Fundamental vs Technical analysis of stocks, both are effective yet quite different methodologies used for research of potentially strong stocks.

It’s really tough to say which one is the better way of investing. Although a number of books have been written on both fundamental and technical analysis, however this debate on the better way of investing is still going on.

My suggestion is to do your own study and make your investing strategy based on your knowledge, preference and time.

Do comment below which investment strategy you follow- Fundamental analysis or Technical analysis.

Also read: How To Invest Rs 10,000 In India for High Returns?

Tags: fundamental vs technical analysis of stocks, fundamental analysis vs technical analysis of stocks, technical analysis vs fundamental analysis which is better, fundamental vs technical analysis, fundamental vs technical analysis, fundamental and technical analysis of indian stocks, fundamental vs technical analysis techniques, fundamental vs technical analysis of stocks in Indian stock market
7 Must Know Websites for Indian Stock Market Investors cover

7 Must Know Websites for Indian Stock Market Investors.

7 must know websites for Indian stock market Investors: The Internet is full of resources. You can find tons of information out there for free. However, as the count increases, it’s literally impossible to remember all the websites that you visit even in a single day.

Luckily, for the Indian stock investors, there are only a few sites which if you remember, will help you to keep yourself updated with all the market news, information, happenings and all.

Please note that there is one such website which every stock investor get ‘used to’ when he/she starts learning the stock market, INVESTOPEDIA. I won’t be discussing this website in this post as it is a jargon than everyone knows.

In this post, I am going to explain 7 must know websites for Indian stock market investors. Further, do read the post till the end, as there is a bonus in the last section.

7 must know websites for Indian stock market Investors:

1. MONEYCONTROL:

Website: http://www.moneycontrol.com/

money control website

Moneycontrol is certainly the most popular website among the Indian stock investor. You can find all sorts of information on this website like market news, trends, charts, livestock prices, commodities, currencies, mutual funds, personal finance, IPOs etc.

Here, you can find the fundamental data of any company along with technical indicators (including candlesticks charts) on money control.

Moneycontrol website also provides a platform to track your investments and to create your own wish list.

Further, the forum provided by this website for discussion is also one of a unique feature of this website. If you are unable to find the latest happenings of any company, just go to the forum of the stock, and read the discussions. (Please do not get influenced by the comments in the discussion section).

In addition, money control also has a mobile app in all platforms- Android, IOS, and windows. The app is amazing because of its simple user interface and great navigation features. If you do not have this app installed on your phone, I highly recommend you to install it now.

2. SCREENER:

Website: https://www.screener.in/

screener website

This is a great website for the fundamental analysis of a company to read its financials.

All the features on Screener are absolutely free. You can find a number of important information about the companies on this website like general info, financial ratios, charts, analysis, peers, quarterly results, annual results, profit & loss statements, balance sheet, cash flows etc.

The best part is the personalized financial reports which are created in such a manner that only useful information is shown. No clutters! The financial statements of a company are very long, however, screener simplifies the financials in small useful chunks. Anyone can easily read the annual reports, balance sheet etc on this website because of the user-friendly display of the data.

I regularly use this website to check the financials of a company and will also recommend using this website. It saves a lot of time for the readers to navigate through the financials.

Also read: How to use SCREENER.IN like an Expert

BONUS: Here’s a video on how you can use SCREENER website to find stocks to invest in Indian stock market.

3. INVESTING:

Website: https://in.investing.com/

investing market

Investing is a good site if you want to find all the information on the same website simultaneously. You can do both fundamental and technical analysis of stocks on this website.

The different options available on this website are general info, chart, news and analysis, financials, technicals, forum etc.

You can also use a number of ‘tools’ available on this website. The best one is – stock screener. You can use the stock screener to shortlist the stocks based on different criteria like market capitalization, PE ratio, ROE, CAGR etc.

I also use investing for technical analysis as there are a number of technical indicators which are available on this website and easy to use.

If you haven’t visited this website, then go on and check it out.

4. ECONOMIC TIMES MARKET

Website: http://economictimes.indiatimes.com/markets

ET Market

Best website to stay updated with the latest market news. Economic times market provides instant and reliable news. It also posts morning and evening ‘briefs’. In case you missed the news an entire day, you can read all the happenings of the day here.

Further, ET market provides similar information as money control website in terms of features it provides like stock charts, portfolio, Wishlist, expert views, mutual funds, commodities etc.

New to stock market? Confused where to start? Here is a great book on stock market investing, which I highly recommend the beginners to read: ONE UP ON WALL STREET by Peter Lynch.

5. LIVEMINT

Website: http://www.livemint.com/

live mint website

A good website to read a variety of posts regarding the stock market, finance, economy, politics, science, sports etc.

This website will keep you updated will all the happenings in the country so that you do not miss out any important one which might affect your stock selection in future.

Further, this website will keep you entertained with tons of info to read.

6. NSE INDIA

Website: https://www.nseindia.com/

NSE India website

This is the official website of the National stock exchange. You can get the information of all the company listed on this exchange along with their financials on this site. The information provided on this website is up to date and accurate.

As the company has an obligation to submit their financial reports to the NSE, hence you can always find the financial data of any company here, in case you can’t find it elsewhere. You can also read the daily updates of bulk and block deal on NSE website.

Further, along with charts, there are tons of historical data regarding NSE and nifty available on this website.

You can find information about the corporates, domestic and foreign investors, new listings, IPO etc. NSE India also provides courses and certifications.

7. BSE INDIA

Website: http://www.bseindia.com/

bse india website

BSE India is the website of Bombay stock exchange.

This is similar to NSE India. However, you can find more historical data here as BSE Sensex has been incorporated for a longer time compared to NSE Nifty.

In addition, over 5,500 companies are listed on BSE whose corporate actions and financial data can be found on this website. You can also download the complete list of ‘public’ companies from this website.

Also read: How to find complete list of stocks listed in the Indian stock market?

The various information available on BSE India are market info, charts, Public offers, OFS, IPOs, Domestic and foreign investors etc

BSE India also provides training and certifications.

Bonus (As promised)

Here are two common websites which you can visit to know the IPO allotment results.

Whenever you apply for an IPO (Initial public offering), although NSE/BSE will send you a text message/mail about the allotment result, however, their messages are mostly delayed by a day or two. If you want to check the result of IPO allotment in time, you can check it on the following websites. You just have to enter the PAN Card with which you have applied for the IPO.

Link in time website

In addition, here are 6 more popular stock research websites that you should know:

  1. Google Finance: https://www.google.com/finance
  2. Yahoo Finance: https://in.finance.yahoo.com
  3. Rediff money: http://money.rediff.com/index.html
  4. MarketMojo: https://www.marketsmojo.com/
  5. Investello: https://www.investello.com
  6. Trendlyne: https://trendlyne.com
  7. Chittorgarh: http://www.chittorgarh.com

SUMMARY

Here are 7 must know websites for Indian stock market investors:

That’s all. I hope this post on ‘7 must know websites for Indian stock market investors’ is useful to the viewers. In case, you haven’t visited the above-mentioned websites, do check it out.

Further, If I missed any big name, please comment below. Happy Investing.

If you are new to stocks and want to learn how to select good stocks for long-term investment, check out this amazing online course: HOW TO PICK WINNING PICKS? The course is currently available at a discount.

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how to do fundamental analysis on stocks

How to do Fundamental Analysis on Stocks?

How to do fundamental analysis on stocks? Fundamental analysis of a stock is used to determine the health of a company. It’s recommended to do a proper fundamental analysis of the stock before investing if you are planning for long term investment.

Technical analysis is good to find the entry and exit time in a stock for Intraday or short term. You can book good profits using different technical indicators.

However, if you want to find a multi bagger stock to invest, then the fundamental analysis is the best tool that you can utilise.

To get multiple times return, you need to remain invested in a stock for long term. While the technical indicators will show you exit signs on short term downtrends, however you can remain invested in that stock if the company is fundamentally strong.

In such cases, you will be confident that the stock will grow and give good returns in the future. Short-term market fluctuations, external factors or mis-happenings won’t affect the fundamentals of the strong company in long term.

In this post, I am going to explain how to do fundamental analysis on stocks. Here, I will ellaborate few guidelines that if you follow with discipline, you can easily select fundamentally strong companies.

I have also written a similar post on ‘How to select a stock in Indian market for consistent returns’ that you can find useful in fundamental analysis of stocks.

How to do fundamental analysis on stocks?

Here are 6 steps that you need to follow to analyse the fundamentals of a company in Indian stock market:

1. Use the financial ratios for initial screening:

There are over 5,500 stocks listed in the Indian stock exchange. If you start reading the financials (balance sheet, profit-loss statement etc.) of all these companies, then it might take years.

For the initial screening of the stocks, you can use various financial ratios like PE ratio, P/B ratio, ROE, CAGR, Current ratio, Dividend yield etc.

I have written a post on how to do initial screening using the financial ratios here: 8 Financial Ratio Analysis that Every Stock Investor Should Know

For the stock screening using financial ratios, you can use different financial websites like

How to do screening of stocks using Investing.com?

Step 1: Go to screener

investing.com how to do fundamental analysis on stocks

Step 2: From top menu select Tools -> Stock Screener

Step 3: Select the financial ratio and then edit criteria.
For example, if you want PE ratio between (5, 18) and dividend yield % between (1, 3), you can select the following criteria.

investing stock screener- How to do fundamental analysis on stocks

Screener will shortlist the stocks according to the criteria mentioned. Further, you can also add a number of financial ratios in your criteria like CAGR, ROE etc.

Also read: How to follow Stock Market?

2. Understand the company:

It is important that you understand the company in which you are investing. Because if you don’t, you won’t be able to decide whether the company is performing good or bad, whether the company is taking right decisions towards its future goal or not; and whether you should hold or sell the stock.

A simple way to understand the company is to visit its website.

Go to the company’s website and check its ‘ABOUT’, ‘PRODUCTS’, ‘PROMOTERS/BOARD OF DIRECTORS’ page etc. Read the mission and vision statement of that company.

If you are able to understand the products & vision of the company and find it attractive, then move further to investigate more. Else, ignore the company.

3. Study the financial reports of the company:

Once you have understood the company and found it appealing, you can check the financials of the company like Balance sheet, Profit loss statements and cashflow statements.

As a thumb rule, Compounded annual growth rate(CAGR), sales & net profit increasing for the last 5 years can be considered a healthy sign for the company. However, you also need to check the other financials like Operating cost, revenue, expenses etc.

The best website to check the financial statements of a company that I most frequently use is SCREENER.

Here are few steps to check the financial reports of a company:

Step 1: Go to screener

scrneer

Step 2: Enter the company’s name in search box. The company’s details will open like charts, analysis, peers, quarters, profit and loss, balance sheet etc.

Screener financials

Step 3: Check the company’s financials.

You need to study the financials of the company carefully to select a good value or growth stock for long term investment.

4. Check the debt:

Company’s debt is one of the biggest factor to check before investing in a stock. A company cannot perform well and reward its shareholders if it has huge debt. In short, avoid companies with huge debt.

As a thumb rule, always invest in companies with debt/equity ratio less than 1. You can use this ratio in the initial screening of stocks or else check the financials on the Screener website.

If you want to learn stocks from scratch, I will personally recommend you to read the book: ONE UP ON THE WALL STREET by Peter Lynch- best selling book for stock market beginners.

5. Find the company’s competitors:

It’s always good to study the peers of a company before investing. Determine what this company is doing that it’s competitors aren’t.

Further, you should be able to answer the question that why you are investing in this company and not any of its competitor. The answer should be convincing one like Unique selling point (USP), future prospects, upcoming projects, new plant etc.

You can find the list of the competitors of the company on the Screener website itself.

Just enter the stock name in the search box and navigate down. You will find a peer comparison there. Study the details about the competitors minutely.

screener peer comparison- How to do fundamental analysis on stocks

6. Analyse the future prospects:

Always invest in a company with a long future prospects. Select only those companies to invest whose product or services will still be used 20 years from now.

Moreover, there is no point in investing in a CD or pen-drive making company with no long term (say 20 years) prospects. If you are planning to invest for long term, then the long life of company’s product is a must criteria to check.

SUMMARY:

Here are 6 steps on how to do fundamental analysis on stocks for the beginners

  1. Use the financial ratios for initial screening
  2. Understand the company
  3. Study the financial reports of the company
  4. Check the debt
  5. Find the company’s competitors
  6. Analyse the future prospects

That’s all. I hope this post on ‘How to do fundamental analysis on stocks’ is useful to the readers.

Also read: How To Invest Rs 10,000 In India for High Returns?

Further, If you find this post helpful and want me to write more contents on similar topic, please comment below. Happy Investing.

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Is Indian stock market risky to invest

Is Indian stock market Risky to Invest?

Is Indian stock market risky to invest? Stock market is one of the best place to make money form your investments. There are number of examples of people with average job who ended up being millionaires by investing in stocks.

For example, if you had bought 100 stocks of Bajaj Finserv in Nov 2008 at a price of Rs 100, you initial investment of Rs 10,000 would have turned out to be over 5.4 lakhs in just 9 years. In addition, dividends would also have been credited to your account every year.

Bajaj finserv share price

But this would only had happened if you had hold the stock for a period of 9 years (not selling in between just to book profits).

You can make great fortunes form the market if you have three basic qualities- Discipline, patience and persistence.

Why people think stock market is Risky?

Every investment has some risk involved in it. Depending on the type of risk taken by the investor, the reward is achieved. There is a famous proverb prevailing since a long time in the investment world- ‘NO RISK, NO REWARD’.

Those who are able to get high rewards from the market are the ones who have adopted balanced approach to minimise risk and maximise the reward.

However, there are a number of people who do not invest in stocks just because they think that the Indian stock market is too risky. 

Also read: 7 Most Common Stock Investing Myths

Is Indian stock market Risky to Invest?

The legendary Investor Warren Buffett has said a famous quote about risks- ‘RISK COMES FROM NOT KNOWING WHAT YOU ARE DOING’.

People think stock market is risky because most of them do not understand the movements in the market. The day to day fluctuations in the market makes them uncomfortable.

Many people cannot relate the upward or downward movements of the share price with the company’s performance. Hence, they think it as an another form of gambling, where no one can surely predict the future outcomes, but just speculate the market.

Moreover, due to the couple of past market crashes in the Indian stock market, most Indians are afraid that the stock market is too risky to invest. They do not want to see their investment falling to grounds.

Nevertheless, stock market as a whole has historically been the best investment for long term.

If you need to make money in next two years, invest in something less volatile. But if you want to make fortune in 20 years, invest in stock market.

Although, I agree that there are few risks involved in the market, but these are the risks that are worth taking.

There is a famous movie dialogue from the film ‘ROCKET SINGH- THE SALESMAN OF THE YEAR’ which I would like to quote here:

‘Risk to Spiderman ko bhi lena padta hai’. / Even Spiderman has to take risks. /

Risk vs. Reward

There is always a risk involved in stock market if you invest in stocks with indiscipline and without doing proper research. However, the risks involved in the market can be minimised (if not totally diminished) by following proper discipline and principles while investing.

Further, if you are happy with a 4% simple interest retun on your savings, then you should not invest in the market. Your money is a lot safer in your savings account. It won’t go anywhere and there is no chance to lose that money from savings, unlike stock market . It will idly sit in your bank account and will give you linear returns.

However, if you are not happy with the 4% interest and think that this return will not help you to fight inflation (5-6% per year), then you have to invest your money. Although, there are risks involved, but it’s better to increase your wealth by investing than to degrade its face value by inflation.

Certainly, there are risks involved in stock market investment, but a 15% compounded annual return can help you a lot in fighting inflation than a linear return of 4% on savings.

Also read: How Much Return Can You Expect From Stock Market?

Lessons from the Past:

Whenever people talk about the risks in the market, the famous example they give is the 2008 market crash.

It was the time of economic recession in India. Market fell over 60% from January 2008 to March 2009.

In short, if you had invested Rs 1 lakh at the top of the market (before crisis) and then you had taken out your investment at the end of the crisis, then the net worth left with you would have been equal to Rs 40,000 only. Your invested amount would have diminished by 60%.

Here is a graph of Sensex.

From the past data of over 45 years, 2008 stock market crash was the worst. Please notice the sharp fall in the graph in year 2008-09. This was one of the biggest market crash in Indian stock market history.

Sensex Chart- Is Indian stock market risky to invest

Source: https://tradingeconomics.com/india/stock-market

In addition, here is the records of Sensex from year 2008 to present year-2017. Please note the Opening,  High, Low and closing points of Sensex at different months.

Sensex Records from 2002 to 2017

Source: Historical Indices- BSE (http://www.bseindia.com/indices/IndexArchiveData.aspx)

Now, let us discuss the Sensex points at different time during (and after) the 2008-09 market crash.

Sensex in Jan’08 = 21,206 (HIGH)

Sensex in Mar’09 = 8047 (LOW)

During this period of 14 month, Sensex fell over 13,000 (-60%) points.

However, if you had just remained invested for 2 and half years from the crash date, you would have recovered completely from the losses.

Sensex in Nov’10 = 21,108 (HIGH)

Sensex 2008-09 Crash

Further, if you had remained invest for 6 more years since the crash of 2008-09, you would have made good profits from the market despite the big crisis period of over 14 months.

Sensex in Jan’15 = 29,844 (HIGH)

Overall, from the historical data, we can say that even the worst market crisis in Indian stock market could have been recovered if you had stayed invested for long term. 

No single market, bull or bear, can last forever. Bear market will always be followed by bull market and vice versa.

The worst thing an investor do in such situations is to panic and leave the market; booking heavy losses. 

If you had left the market during the 2008-09 market crash by panic, then you would had to book a loss of 60% on your investment. This could have destroyed your net worth.

However, if you just had patience and had hold the stocks for long term, you could have made wonders.

If you want to learn stocks from scratch, I will personally recommend you to read this book: ONE UP ON THE WALL STREET by Peter Lynch- best selling book for stock market beginners.

Risks Analysis:

It’s true that many of the small caps companies were forced to shut down during the crash due of bankruptcy. However, all the fundamentally strong companies remained intact and recovered quickly after the crash.

There are hundreds of examples of the stocks whose price fell heavily during the stock market crash. However, 9 years later, their price is sky rocketing today compared to the stock price at that time.

Here are the stock prices of 4 common Indian companies that everyone might be aware of.

Had you invested in these companies, you would have created huge wealth. Inspite of the big market crash of 2008-09, its effect are not visible on the stock prices of these companies.

  • Tata Consulting Service

TCS Share price

  • Eicher Motors

Eicher motors share price

  • MRF

mrf share price

  • Hindustan Uniliver

HUL share price

Image Sources: Google

The list of such out-performing common stocks goes on and on. The long term investors have always created wealth for the market, despite the market crashes and corrections.

Also read: How To Invest Rs 10,000 In India for High Returns?

Sensex yearly records from 2000 to 2017.

Sensex Records from 2000 to 2017

Source: Historical Indices- BSE (http://www.bseindia.com/indices/IndexArchiveData.aspx)

From the above table, you can notice that for the long term investors, the rewards have always been greater than the risks.

Sensex has given a return of over 9 times (closing of 3,972 in 2000 to 31,892 in 2017) in a period of 17 years, which time period includes one of the biggest market crash in Indian history.

Moreover, this is the return form just the index of the market, which covers the average of the market.

If you had invested in few good companies from a pile of over 6,000 companies listed in the Indian stock exchanges, you could have easily beat the market.

Your returns would have been much better than the 9 times return of the index in the period of 17 years.

Overall, stock market is risky for the impatient investors. However for the long term investors, stock market has never been risky.

Stock market has always rewarded the long term investors.

What are the real risks involved in the market?

Although stock market is safe for a long term investor, however there are few risks involved in the market. Here are the real risks that every investors should be aware of. These are those risks that turns out to be a wealth destroyer for most of the investors:

1. Speculating the market:

Stock market becomes risky when people starts to speculate. Many a time, people buy stocks just because they get intuitions that the price of that stock is going to rise. Buying stocks on speculations is always a wealth destroyer.

2. Trading in Futures and Options:

Although many people had earned a lot of money by trading in Futures and option. However, the number of people losing money in F&O is relatively high. Never enter futures and options trading without proper knowledge.

3. Entering with no Proper Strategy:

Stock market becomes risky when you do not have any proper strategy while entering the market. A good strategy covers the time to entry, time to exit, total investment amount, portfolio allocation etc.

4. Following Recommendations:

Buying stocks on ‘TIPS’ or recommendations always invites risks for the investor in the market. Moreover, following your broker or friend’s recommendation blindly has always led the investors to regret in future.

5. Not following risk management systems:

A little risk is always involved in stock market. However, by following few risk management systems, you can minimise the risks and maximise the rewards. For example, using ‘STOP-LOSS’ while trading is a good risk management strategy.

6. Trading with emotions:

Trading with emotions is always risky in stock market. Never attach emotions in the market. Do not get dishearten or proud if your stocks are doing bad or amazing in the market. Trade with discipline, patience and persistence.

7. Lack of Patience:

If you do not have patience in the market, you cannot create wealth. Warren Buffett used to say that – ‘Stock market is a place to transfer money from impatient to patient people’. Stock market is risky for impatient people. Most of the time, its the impatient people who turn out to be the losing one, transferring their wealth to the patient people in the market.

8. Non-diversified portfolio:

If you have invested all your wealth in a single stock, then there is a big risk involved in your investment. Market works on emotions. Sometimes, even the best company can become the victim of unfavourable conditions like new government norms, irregular losses/damages etc. Like the old ones used to say- ‘Never put all your eggs in one basket’. Non diversification is risky in stock market.

9. No proper understandings:

If you are investing in a company that you do not understand, you are taking one of the biggest risk in the stock market. How can you decide weather the company is doing good or bad; Weather you should hold or sell the stock; if you do not understand the company? No proper understandings of the company can freeze your decisions and will lead your investments to a big danger.

why most People lose money in stock market

That’s all. I hope this post- ‘Is Indian stock market risky to invest?’ is useful to the readers. Moreover, I hope that it can inspire the people to start investing in the market by managing the risks and focusing on the rewards.

Please comment below what do you think about this topic. Is Indian stock market risky to invest?

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sip or lump sum which is better

SIP or Lump sum – Which one is better?

SIP or Lump sum -Which one is better? Whenever a newbie investor plans to invest in the stock market, the most common question for him/her is whether to invest in Systematic Investment Plan- SIP or Lump sum.

Should he invest his entire savings of Rs 1 lakh in one go (when the time is correct), or should he invest Rs 10,000 systematically for the next ten months?

Many times this question can be quite confusing. Without proper guidance, the stock market beginners are not able to decide which one is a better strategy to invest. Whether to choose SIP or Lump sum.

Which investment approach will generate high returns- lump sum or systematic investment plan?

Have you also come across the same question?

If yes, then continue reading this post because here I am going to explain the difference between SIP & Lump sum and which one you should choose.

There are different scenarios covered in this post to easily understand the approach to be followed by different investors to select between SIP or lump sum. Here is a detailed analysis.

SIP or Lump sum -Scenario 1:

Imagine in the first scenario, you and your friend decided to start an apple farm independently. You both agreed to sow some apple trees in your gardens for a period of one year and then calculate the net growth at the end of the year.

sip or lump sum example 1

You both went to market.

However, you both decided different approaches for your gardens.

On one hand, you bought all the apple seeds at once and sowed it in the garden.

On the other hand, your friend settled to buy the seeds monthly and sowed little every month.

Further, in this scenario, let us assume that the price of the seeds remained unchanged throughout the year.

At the end of the year, what result do you expect? Whose apple garden will have better trees?

Obviously, the one where the seeds got maximum time to grow. You gave entire one year for your trees to grow.

However, your friend didn’t give the full year and the duration was different for the batches of seeds bought in different months. Clearly, your apple garden will give better results.

Now, let us understand this first scenario in a more pragmatic way with the help of an example.

Suppose you invested Rs 1 lakh lump sum amount at the start of the year and your friend invested Rs 1 lakh in SIP i.e. Rs 25,000 per quarter.

Let you invested in a fixed deposit (FD) at 8% ROI and your friend invested in recurring deposit at 8% for a year.

In this case, although you both have invested the same amount, however, you will accumulate more wealth compared to your friend. Let me explain why.

This happened because you invested the whole money for a complete year.

In comparison, your friend invested Rs 25,000 every quarter. So this amount remains invested for 12,9,6 and 3 months respectively (till the end of the year).

Since your friend’s average investment period is small here, hence the interest will be less.

Further, if your friend even has got higher recurring deposit rate, say 9, 10, 11 or 12% rate of return, still, he would not have been able to match your lump sum investment.

Here are the returns on the lump sum vs recurring deposit (at higher rates) for an investment of 1 year:

ROI on Lump Sum Return after 1 year ROI on Recurring deposit Return after 1 year
8% Rs 108,000 9% Rs 105,752
10% Rs 106,408
11% Rs 107,066
12% Rs 107,728

Note: You can use this site for calculations- http://everydaycalculation.com/sip.php

To get a similar return, only at 12.5% ROI or above, your friend will be able to match you.

This illustration proves that for growing your investment, time is most important. That’s why it is said to start investing as early as possible.

Also read: How Much Return Can You Expect From Stock Market?

SIP or Lump sum -Scenario 2:

Now, let us learn further the SIP or lump sum in another scenario.

We have to go back to our apple gardens to understand the prospects of this scenario.

Here, let’s take that the buying strategy of you and your friend remained the same. You decide to buy all the apple seeds at once and sow it at the starting of the year.

On the other hand, your friend settled with monthly investment on apple seeds and decided to buy and sow the seeds monthly.

Now, in this second scenario, let us assume that the price of seeds starts falling every month and kept falling till the end of the year.

As your friend bought seeds monthly, he will be able to buy more number of seeds on the investment amount, because the seeds price kept falling.

Let’s understand this better with an example.

Assume that the price of apple seeds was Rs 300 at the start of the year.

You are your friend, both planned to invest Rs 30,000 in the entire year.

As you bought all the apple seeds at the start of the year, you would have been able to buy (30,000/300)= 100 apple seeds.

Let’s further assume that the price kept falling monthly at a rate of Rs 2 per month. So the price of the apple seeds in the subsequent months will be Rs 298, Rs 296, Rs 294 … Rs 278 (at the end of the year).

Taking the profit of the declining apple prices, your friend will be able to buy more apple seeds by the end of the year.

In this scenario, although you have invested for a longer time, however, your friend will get better results.

This happened because of the lower average cost. The average purchase price of a single seed by your friend will be much lower than what you paid for. Hence, in the same investment amount, your friend will be able to buy more number of seeds.

And therefore, your friend will plant more of apple seeds until the end of the year and will get much better results on his investment compared to you.

Note: This concept is called Rupee cost averaging.

Nevertheless, this is again only one side of the story. Imagine if the price of seeds kept increasing per month. Then what would have happened?

The outcome would have been totally different. You would have easily got much better results compared to your friend in this rising price scenario.

SIP or Lump sum -Scenario 3:

In this third scenario, let us assume that the prices of the apple seeds kept changing (increasing or decreasing throughout the year).

Here, average cost technique is used to calculate the return on your friend’s investment.

However, the return on your investment here depends totally on your entry and exit time.

If the prices were low when your entered and high when you decided to exit, you might have been able to book great profits compared to your friend who would have just got the average profit.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

Conclusion:

Here are few of the main conclusions of SIP or lump sum which you can derive from this post.

  • SIP can reduce the market fluctuation risks by Rupee cost averaging.
  • Invest in the lump sum when the market is continuously rising.
  • Invest in SIP when the prices are falling

Overall, it’s not easy to select an investment strategy between SIP or Lump sum. An intelligent investor should choose his own style, depending on his style and preference. In addition, market situation and opportunity also drives the investment strategy from time to time.

That’s all. I hope this post on ‘SIP or Lump sum- Which one is better?’ – is helpful to the readers.

Further, also comment below which investment strategy you prefer- SIP or Lump sum?

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

HOW MUCH RETURN CAN YOU EXPECT FROM STOCK MARKET COVER

How Much Return Can You Expect From Stock Market?

How much return can you expect from stock market? Most of the people enter the stock market with the sole purpose of making money. Inspired by the veteran billionaire investors like Warren Buffett, Rakesh Jhunjhunwala, RK Damani etc, they also want to try their knowledge and luck.

However, while most people dream of making huge fortune from the market, they end up losing money. This end is mainly because the newbie investors do not know what return they can expect from the market.

A common investor enters the market with some arbitrary goals to double or sometimes quadruple his/her investment in six months time duration. But in the real case scenario, even the best investors cannot achieve this big goal in that short amount of time.

I do not blame just the retail investors for those surprisingly high return expectations. There are many agencies who inflate their thoughts like media, stock brokers, fraudsters etc.

For example, everyone knows the story of Mr Rakesh Jhunjhunwala about how he bought the stocks of Titan Company at Rs 3, which is currently trading at Rs 600 level. This news, which is commonly circulated by the media drives the high expectations of the common investors from the stock market.

Nevertheless, what about the other stocks in Rakesh Jhunjhunwala’s portfolio? Do you know how much return his other stocks gave? Do you know what percent of net portfolio was allocated for Titan Company by Mr Jhunjhunwala? He has more than at least 20 stocks in his portfolio. If few stocks have given him multiple time returns, then few might also have been in loss. The average portfolio return will surely come down if we calculate the cumulative profits and gains of all the stocks. Still, people ignore to know the complete facts and expect to get huge returns from their investments in six months just like Mr Jhunjhunwala.

Then comes the stock brokers. The brokers encourage the investors to invest in some stocks that they suggest as a multibagger stock ( Multibagger are those stocks which give multiple times returns compared to initial investment). But how come the brokers do not buy the same stocks in bulk and make millions if they are damn sure if it’s going to be a multibagger. Instead, they just advice to buy those stocks to their clients suggesting them that the stocks will make huge fortunes for them in short amount of time.

And lastly comes the fraudsters. Some fraudsters’ claims to give 60-80% return in six month. You can find a number of such stock advisors if you simply google- best stock market recommendations in your area. These fraudsters even claim to give 99% accurate suggestions. Unluckily, many common investors believe them and expect to get 80% returns in next six months.

With all these things going around, a common investor keep his expectations way too high when they enter the stock market. If you say that you have earned 20% annual returns from the market last year, they will laugh at you and ask that why did you entered the stock market for this low returns then. They believe that one should enter the stock market only if they get high returns, say 50% per annum.

However, there are many things that these newbie investors are missing out about the return you can expect from stock market. Let me focus some light on them.

Warren Buffet Performance through Years: 

Everyone knows about Warren Buffett. The greatest investors of all time and one of the richest men on this planet. Let’s take Mr Buffet’s annual return from his company ‘Berkshire Hathaway’ as a benchmark and analyze his returns. Here are the returns of Berkshire over the years:

Source: http://awealthofcommonsense.com/2015/03/buffetts-performance-by-decade/

Source: http://www.marketwatch.com/story/from-6000-to-67-billion-warren-buffetts-wealth-through-the-ages-2015-08-17

From the above table, there are two important points worth noticing:

  1. Warren Buffett has earned an average of 22% return per year for the period of almost 6 decades now.
  2. 99% of his wealth has been accumulated after an age of 50.

Now, you might ask me that how the hell then Warren Buffett became the richest man in the world.

The answer is simple. It’s consistency and patience. Consistency because he got an average return of 22% year after year. Patience because he did it for around 6 decades. That’s an amazing figure considering there will be many bear market, crashes, economic recession etc that would have happened in that long time frame.

Many people can get 40% return in a bull market. But can they do the same in bear market, when the market is going down and making new lows day after day. Can they still get an average 20% return?

Although for few years, Warren Buffett has received a return of around 39% per annum and for some years as low as 5.9% per annum (during the 2008 recession). However, it is the consistent return of 22% per annum that has made him one of the richest people in this world. Moreover, it’s the power of compounding that has played a major role in making him rich. His net worth increased exponentially with time.

There’s another example of a great investor and fund manager- Peter Lynch, whom we can consider to figure out the return can you expect from stock market. Mr Lynch was able to receive an average return of around 29% per year for a period of 13 years, when he was the fund manager at Fidelity Investments. That’s why he is considered as one of the greatest fund manager of all time. However, 13 years is too small compared to 6 decades of consistency shown by Warren Buffett.

If you want to learn stocks from scratch, I will highly recommend you to read the book: ONE UP ON THE WALL STREET by Peter Lynch- best selling book for stock market beginners.

How Much Return Can You Expect From Stock Market?

Taking all these in consideration, we can conclude that an average return of 15-20% per year can be considered good in stock market. Do not try to make money fast. Try to achieve an average return of 20% per year first. Above this, everything is a bonus of your intelligent investment and an added fortune for your portfolio.

Further remember that you get only get 4% simple interest return in your saving account. This return is way much higher than your saving returns.

Performance of Sensex over the years:

Now, let me walk you through the sensex to help you out with what return can you expect from stock market vs actual that this index has given over the years. Here is a graph of Sensex:

From the above graph, you can notice that Sensex has moved from 17,500 level in August 2012 to 32,300 current level (August 2017). Over the period of last five years, Sensex has given a cumulative return of around 85%.

Now, if we consider from August 2002, Sensex was at 3000 level then. Hence, for the last 15 years, Sensex has given a return of around 960% (over 9 times).

Overall, for the long term, Sensex has outperformed all the other investment options like saving, fixed deposits, gold, commodities etc.

Also read: Getting Smart With Investment in Gold.

Conclusion:

From the facts discussed in this post, a good return can you expect from stock market is around 15-20% per annum. This is in context with a retail investor. Any additional return above this can be gained as an added value because of the excellent stock selection and good fundamental and technical study of the stocks in your portfolio.

Further, it’s not just the return that matters. The consistency in getting the returns year-after-year will help you in making huge fortune.

Bonus:

Let me further explain how a consistent return of even 15% per annum for long term can help you to create great fortunes.

Suppose you invested Rs 1 lakh in some good stocks at an age of 25. You remained invested till the age of 60. Therefore, the duration of your investment in 35 years.

Here is your final returns at 15% CAGR (compounded annual growth rate) after 35 years:

Year Year Interest Balance
1 15,000 115,000
2 17,250 132,250
3 19,838 152,088
10 52,768 404,556
20 213,477 1,636,654
30 863,632 6,621,177
35 1,737,072 13,317,552

Note: You can calculate the compound interest returns here- http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

Your Rs 1 lakh investment at an age of 25, turns out to be over 1.33 crores at an age of 60 (considering the annual return of 15%). 

Further, this example shows just one time lump sum investment. Imagine the fortune that you can make if you can keep investing the same (or larger) amount year after year. You can easily create great wealth considering the decent returns from the stocks.

That’s all. I hope this post on – “How much return can you expect from stock market” is useful to the readers. Do comment below what are your expectations from the stock market.

Growth Stocks vs Value stocks – A logical Comparison

Growth Stocks vs Value stocks- A logical comparison: There are many ways to approach investing in stock markets. However, a growth stock and a value stock are considered very important in deciding the strategy for many investors in a different set of companies. Understanding growth stock vs value stock can help you to pick your investing strategy.

Many a time, you might have wondered why people are buying the stocks which are trading at such a high Price to Earnings (PE) ratio. Further, you might also have thought why most intelligent investors are looking for a low PE. The difference in the stock choosing strategy is itself contradicting and can be confusing for the newbie investors.

Therefore, in this post, I am going to explain the growth stocks vs value stocks so that you can develop a clear understanding of the different approaches of the veteran investors. Further, I have a surprise additional investment approach in the last section of the article. So, make sure you read the article until the end.

GROWTH STOCKS VS VALUE STOCKS

GROWTH STOCKS:

We can define a growth stock as a company which is growing at a very fast rate compared to its industry and market index. These stocks have a large PE ratio. The high valuation of these stocks is justified with the earnings as it grows very fast year after year. Typically, the growths of these companies are around 15% per year, while the rest of the nifty 50 stocks grow at an average of 5-7% per year.

A growth investor doesn’t care whether the stock is trading above its intrinsic value as long as the market price of those stocks keeps rising. As the growth and earnings of those companies are way higher than the peer companies, the investors expect those stocks to trade at a high PE.

Few examples of growth stocks from Indian stock market are- Eicher Motors, Hindustan Unilever (HUL), Colgate etc.

VALUE STOCKS:

A value stock has completely different characteristics than the growth stocks. These companies do not have a high growth rate, rather they grow very slow. However, these stocks trade at a low market price.

The concept of value investing was introduced by Benjamin Graham (the mentor of Warren Buffett), back in 1930’s. In his famous book ‘The Intelligent Investor’, Ben Graham has described the approach for a value investor, along with few other important concepts like Mr. Market & Margin of safety.

Note: If you want to build good fundamentals in investing, I will highly recommend you to read the book- The Intelligent Investor by Benjamin Graham.

Value investors look at investing in stocks as buying the super cheap company through finding its intrinsic value using company’s fundamentals as reported in quarterly and annual reports.

The value investing approach is simple. The value investors look for an opportunity to buy a stock which is way less valued in the market than it’s intrinsic value and buys it. A value investor believes that this stock will rise to its true intrinsic value in future. He holds that stock until it goes back to its normal value.

Few current examples of value stocks from Indian stock market are- HPCL, Coal India etc.

There are a number of financial indicators used to determine an undervalued stock for value investing. Here are two of the most commonly used indicators:

  1. Price to Earnings Ratio (P/E)

The Price to Earnings ratio is one of the most widely used financial ratio analysis among the investors for a very long time. A high P/E ratio generally shows that the investor is paying more for the share. As a thumb rule, a low P/E ratio is preferred while buying a stock, but the definition of ‘low’ varies from industries to industries. So, different sectors (Ex Automobile, Banks etc) have different P/E ratios for the companies in their sector, and comparing the P/E ratio of company of one sector with P/E ratio of company of another sector will be insignificant. However, you can use P/E ratio to compare the companies in the same sector, preferring one with low P/E. The P/E ratio is calculated using this formula:

Price to Earnings Ratio= (Price Per Share)/( Earnings Per Share)

  1. Price to Book Ratio (P/B)

The Price to Book Ratio (P/B) is calculated by dividing the current price of the stock by the latest quarter’s book value per share. P/B ratio is an indication of how much shareholders are paying for the net assets of a company. Generally, a lower P/B ratio could mean that the stock is undervalued, but again the definition of lower varies from sector to sector.

Price to Book Ratio = (Price per Share)/( Book Value per Share)

Read more here: 8 Financial Ratio Analysis that Every Stock Investor Should Know

Both value stock and growth stock investing approach are an effective way to make money from the stocks. There is no fixed way of investing that you should choose and stick to it.

Most of the successful investors have first studied the value stocks vs growth stocks approach and then developed their own unique style.

CONCLUSION: Growth Stocks vs Value stocks

GROWTH STOCKS VALUE STOCKS
A growth stock is bought at a fair price. A value stock is bought at a discount to its intrinsic value.
They have a huge potential for future earnings. Earnings growth is small. However, the value investors make profits when the stock reaches its true intrinsic value.
They have higher PE ratio. Value stocks have low PE ratio.
They give low or no dividends. Value stocks give good dividends.

Here is a chart for the PE ratio of growth stocks vs value stocks vs industry-

growth stocks vs value stocks plot

BONUS SECTION: INCOME STOCKS

This is the third way to invest apart from the value stocks and growth stocks. An income stock approach is investing in those stocks which pay a high, regular and increasing dividend.

The high dividend yield of these stocks mostly generates the overall returns.

Dividend Yield

A stock’s dividend yield is calculated as the company’s annual cash dividend per share divided by the current price of the stock and is expressed in annual percentage.

Dividend Yield = (Dividend per Share)/(Price per Share)*100

For Example, If the share price of a company is Rs 100 and it is giving a dividend of Rs 10, then the dividend yield will be 10%. It totally depends on the investor weather he wants to invest in a high or a low dividend yielding company. Read more: The Fundamentals of Stock Market- Must Know Terms

The dividend yield of income stocks is higher compared to the peers in industry and market index.

While investing in an income stock, you should always choose in a fundamentally strong company. Otherwise, if the profit decreases in future, the dividends will also decrease.

Also read: 10 Best Dividend Stocks in India That Will Make Your Portfolio Rich.

That’s all. I hope this post about ‘Growth stocks vs value stocks’ is helpful to the readers. Further, do comment below which investment strategy you follow: Growth or value?

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

Tags: growth stocks vs value stocks, definition and example of growth stocks vs value stocks, difference between growth stocks vs value stocks

What is the Right Time to Exit a Stock cover

What is the Right Time to Exit a Stock?

What is the Right Time to Exit a Stock? When should you sell the stocks and book profit? This is one of the most important questions which come to every beginner who enters the stock market.

Do you remember the story of the brave Abhimanyu from Mahabharata. He went through a fatal end just because he knew how to enter a ‘chakravyuh’ but didn’t know how to exit.

Similarly, the selling time of a stock is as important as the entry time. Therefore, in this post, I am going to explain the exit strategy for an intelligent investor. Be with me for the next 5-6 minutes to learn the right time to exit a stock for maximum returns.

What is not the Right Time to Exit a Stock?

Imagine a scenario.

You bought 20 stocks of a company at price Rs 500 today. Further, let’s also assume that you have done a good research and the stock is fundamentally very strong.

Next morning, the stock price zooms to Rs 550 (+10%). What will you do? Will you sell the stock and exit?

Now, let’s move to two days hence. The stock price now rose to Rs 590 (+8%). What will be your next move?

When prices of the stock rise like this, the ‘greed and fear’ becomes in-charge of your actions. Here, you might think that let’s book the profit. You have already gained Rs 90 per share (+18%). What if the stock prices fell tomorrow? It’s better to book some profits right now and you will enter again in the stock when the price is low.

But, while doing so you are missing out few points. Let me highlight them:

  1. You have researched the stock carefully and the stock has a potential to give huge returns. It might become a multi-bagger in the future. Why do you want to book a profit of +18%, when you can get +1000% profits?
  2. You might also be thinking that you will enter the stock again when the price is low. What if the stock price never comes down? I mean, the company is fundamentally strong and might give brilliant results in future. There are a number of stocks whose price has never fallen much and hence has never given the buyers a better opportunity to buy again. Why do you want to jump from the running train and want to catch it again?
  3. Let’s imagine the scenario that you re-entered the stock. Do you know in such scenario you have to give the extra brokerage charge and other charges (almost 4 times)? I mean, you have to pay all the charges 2 times when you first bought and sold the stock. And next 2 times, when you re-enter and will sell in future. Total 4 times brokerage. Do you really think it’s worth paying 4 times the brokerage just to book a profit of +18%?
  4. Lastly, do you know that you have to pay a capital gain tax of +15% for short-term gains? For long-term investment (over 1 year), the capital gain tax is nil 10% (Since April 1, 2018).

Overall, it’s not logical to sell the stocks if fundamentals are strong just to book some short-term profit. Look at the bigger picture. Haven’t you ever wondered why the great investor’s like Warren Buffet, Rakesh Jhunjhunwala, RK Damani etc always invest for a long term? How will you get a multi-bagger stock if you never gave your stock the opportunity to grow?

Also read: 6 Reasons Why Most People Lose Money in Stock Market

Let me explain further with an example.

I bought the stocks of TITAN Company at a price of Rs 314 per share in November’16. The company is fundamentally very strong and the stock was selling at a discount during that time because of demonetization.

titan company- right time to exit a stock

On June 5, the price of the stock rose +18% in a day. A positive news regarding GST was out which said that the taxes in jewelry sectors was going to be reduced. The news was taken enthusiastically by the people and that’s why the stock price rose too high of Rs 561 that day.

But I didn’t sell my stocks. You might argue that I should have booked a profit (+70% from the time of my entry). However, if you see from my perspective, it wasn’t the right time to sell.

There were a couple of reasons why I didn’t sell my stocks at that time. First, the rise in sudden price was due to good news. However, the fundamental of the company didn’t change. The company will continue to give good results in future.

Second, I might never get the stock at such bargain price again like the price during the demonetization period.

Third, I didn’t really need the money that time. If I had to sell my stocks, then I had to search again for a better stock to invest, which would have taken a lot of my time & energy.

And it seems my decision was right. The stock did correct its price. However, after a month, the stock price is back again at the same high price and is continuing the positive trend. No damage is done!!

Want to learn more about stock market? Here is a best selling book on stocks- Beating the street by Peter Lynch which I highly recommend you to read.

Next, you might say that the above case is a typical situation. I didn’t explain what is the right time to exit a stock?

Here are the three cases when you should actually sell the stock.

What is the right time to exit a stock?

  1. When the fundamental of the stock changes: Exit the stock when the fundamentals of the company are not the same anymore like when you bought the stock. For example, the company starts underperforming quarter-by-quarter; the non-performing assets (NPA) of banking companies start increasing at a high rate; the management of the company is changed and is inefficient etc.
  2. When you find a better stock: If you find a company whose fundamentals are better than your current stock and is giving better performance consistently, then it can be the right time to exit a stock. Moreover, this case is applicable when you do not have extra money to invest from your budget. In such scenario, you should sell the previous stock and grab the better opportunity.
  3. When you need the money: Do not sell the stocks just to keep the money in your saving account. Sell the stocks when you need the money like paying for a new house, new car, and your kid’s tuition fee etc. There cannot be a better time to exit a stock than when you need the money most.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

In all the other scenarios, the holding period of a good stock should be forever. Do not mind the minor fluctuations. Invest in good stocks for long term and enjoy the ride.

charlie munger quote- what is the right time to exit a stock

I hope this post is helpful to the readers. Do comment below what you think about this exit strategy.

How To Invest Rs 10,000 In India for High Returns

How To Invest Rs 10,000 In India for High Returns?

How To Invest Rs 10,000 In India for High Returns? Investing is the best way to grow your money. Gone are the days when people kept their fortune (gold) buried below their land. Everyone is now interested to make more money through their investments.

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen

However, when I look around, a very few people know how to invest their money intelligently. Most are even not aware of the investment options available to them in India. Today, I am going to suggest the best answer on how to invest Rs 10,000 in India for maximum returns. Therefore, be with me for the next 8-10 minutes to start your journey of financial investment as a successful investor.

There are a number of investment options available in India to invest Rs 10,000 or more. Here are the few options and the expected average returns in a year duration:

  1. Savings: 4–6% per year
  2. Fixed Deposit: 6–8% per year
  3. Mutual funds: 10–18% per year
  4. Stock Market: 15–25% per year

Besides, other investment options available in India are Real estates, gold, silver, forex, cryptocurrencies, commodities like petroleum etc. However, for an investment of Rs 10,000- these are little out of scope.

So, how to Invest Rs 10,000 In India for High Returns? Among all the options mentioned above, Investment in the Stock market and Real Estate are the ones that have consistently out-performed all the other investment options in long duration. However, investing in real estate won’t be possible with an amount of Rs 10,000 until you take a lot of credits.

Hence, Stock market is the best option available for investment of Rs 10,000 to get maximum returns.

Also read: Sensex has given 9x returns in last 20 years; it is time to be a buyer now

Here is a graphical comparison of returns on Stocks, bonds, gold etc for a period of over 200 years.

stock vs bond vs gold

(Source: http://www.aaii.com/files/images/articles/9298-figure-1.jpg)

Note: Although the above graph doesn’t show returns from Indian stock market, however, stocks (in general) follow the same trend compared to other investment options all over the world. Please ignore the figures in the chart.

Now. let us analyze the past of Indian stock market and find out -how much return you might have got, if you had invested Rs 10.000 in a few famous companies, a few years ago.

  • Eicher Motors (over 80 times returns in the last 10 years)

Products: Royal Enfield, Eicher Trucks etc- 

If you had invested Rs 10,000 in Eicher motors 10 years back, then currently your return would have been over Rs 8,00,000 i.e. 8 lakhs. I wish my dad had bought the stocks of Eicher motors instead of Royal Enfield ‘bullet’ bike 10 years ago 🙁

Eicher motors multibagger stocks How To Invest Rs 10,000 In India for High ReturnsEicher motors share multibagger stocks How To Invest Rs 10,000 In India for High Returns

  • Page Industries (over 50 times return in last 10 years)

Products: Innerwear & Leisurewear (JOCKEY) etc- 

If you had invested Rs 10,000 in Page Industries 10 years back, currently you would have been sitting of a huge pile of over Rs 5,00,000 i.e 5 lakhs. Wish people had paid more attention to their underwears :p

Page industries stock multibagger stocks How To Invest Rs 10,000 In India for High Returns

Also Read: How to follow Stock Market!

  • MRF (Over 17 times return in last 10 years)

Product: Tyres-

If you had invested Rs 10,000 in MRF 10 years ago, you would have got a handsome return of Rs 1,70,000 i.e. Rs 1.7 lakhs now. Just if any bike servicing guy had noticed how many people are using MRF tyres and had bought few stocks of MRF Tyres a few years back, he would have been a rich happy man by now.

If you want to get in-depth knowledge about Indian Stock Market, I will highly recommend you to read this book: How to avoid loss and earn consistently in the stock market by Prasenjit Paul

MRF multibagger stocks How To Invest Rs 10,000 In India for High Returns

MRF stock price multibagger stocks How To Invest Rs 10,000 In India for High Returns

  • Symphony (Over 12 times return in last 5 Years)

Products: Domestic air coolers, industrial air coolers, and water heaters

If you had bought the stocks of SYMPHONY worth Rs 10,000 just 5 years ago, you would have got a return of over 1,20,000 i.e. 1.2 lakhs now. Huh, we enjoyed the air cooler but ignored the company 5 years back. Our bad 🙁

Symphony multibagger stocks How To Invest Rs 10,000 In India for High Returns

Symphony share price multibagger stocks How To Invest Rs 10,000 In India for High Returns

Eicher Motors, Page Industries, MRF, Symphony– all are common companies in the Indian market, which every Indian might already know. Most of the people have directly or indirectly used their products. Further, we can also notice that all these multi-bagger companies (companies which have given multiple time returns) have provided a great product/service to their customers, which resulted in constant growth in sales and profits.

Also Read:

How To Invest Rs 10,000 In India in Stock Market?

Here are few tips on how to invest Rs 10,000 in India in stocks to get maximum returns:

  • Do the research carefully:

Invest in the company, not the stock. If the company is doing great, the stock will also perform well. Research the company carefully before buying a stock.  Understand the company first. Learn about its product and services. Study the company’s fundamentals. If you want to read more about how to select a stock, you can find an excellent post here: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

  • Invest in just one or two stock:

Everywhere there is a hullabaloo about diversification while investing- ‘Do not put all your eggs in the same basket’. However, in reality, the concept is different if we expect maximum returns from small investments. Do not diversify your portfolio when you are investing just Rs 10,000. Instead, invest in just one or two great stock.

Diversification is used when you are investing a huge amount of money like Rs 50k or above. It’s the big bets which can help you to get great returns. Diversification kills the profit when the investment in small.

Let’s understand this with an example. Suppose, you invested Rs 10,000 in a good stock. The stock gave a return of +50% percent in a year. Then, the total return amount will be Rs 15,000. Now, let us assume another scenario in which you invested Rs 10,000 in 3 stocks. The return on the stocks after a year are +10%, +50%, and +15%. The overall return amount will be Rs 12,500 (+25%). All the three stocks cannot give similar returns and one of them might be fundamentally strongest. If only you had invested in the fundamentally strongest among the three, you would have been able to get a double return (from 25% to 50%) on your investment.

In addition, there is not much to lose for small investment like Rs 10,000. People diversify their portfolio so that they won’t lose lakhs of rupees (and go bankrupt) if their investment strategies failed. However, if you are planning to invest just Rs 10,000; then the reason for investment must be that you have extra savings and you want to get a good return on the investment. In such cases, go for a big sure shot.

Quick Note: If you do not have a big risk appetite, then ignore this tip and diversify your investments. 

warren buffet- How To Invest Rs 10,000 In India for High Return

  • Invest in what you know: 

You don’t need to find an unknown hidden stock to get multi-bagger returns. There are a number of common well-known stocks (Eicher motors, Symphony, Page Industries, MRF etc) which have given multiple times returns in the past and will give in the future. Look for a growing company around you. Study if they are listed on the stock exchange. Learn the fundamentals of those stocks. And if they are fundamentally healthy, invest in the stocks. This is an effective way to find multi-bagger stocks, even for regular investors.

This concept was introduced by the legendary fund manager Peter Lynch in his best selling book ‘ONE UP ON  WALL STREET’.

  • Invest in Mid-caps:

These companies have the potential to become a large-cap company in the long term frame. They have a high growth rate compared to the large caps which have already reached saturation and the chances of large caps giving multiple time returns are highly unlikely. In addition, Mid-cap companies have good capital to stay out of debt and live a long life. A good growing mid-cap stock can easily become a multi-bagger.

Few people advice to buy penny stock or the small-cap stocks for getting high returns. However, for the small caps, the chances of the company growing broke is also high. Most small-cap companies are not able to sustain in harsh economic conditions which is sure to occur once or twice in the long-term period. Therefore, investing in small-cap companies has more risk than reward.

That’s all. I hope this post ‘How to invest Rs 10,000 in India for maximum returns’ is useful to the readers. In addition, do comment below if you have any doubts or suggestions on how to invest Rs 10,000 in India in the stock market. I will be happy to read your feedback. #HappyInvesting

Quick Note: If you are new to stocks and confused where to start, here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

most common scams in indian stock market

3 Most Common Scams in Indian Stock Market That You Should be Aware of.

3 Most Common Scams in Indian Stock Market That You Should be Aware of. There are a number of common scams in Indian stock market which has resulted in many investors/traders to lose their hard earned money. These financial scams, although not known to many, still so common that thousands of people become victims of these swindles.

So, today I am presenting you with three most common scams in Indian stock market so that you can stay away from these rackets and protect yourself from the financial fraud and stress.

3 Most Common Scams in Indian Stock Market


1. Tips and Recommendation Fraud

This is one of the widely used and most common scams in Indian stock market. Here, the fraudsters try to attract the traders/investors by convincing them that they can provide a profit as much as 3-10% per day and 30-40% per month. Please note that Warren Buffet, the legendary investor, has got a yearly return of around 22% to become one of the richest people in the world. And these people are promising such high returns monthly. They further assure the people to give over 90% accuracy on their tips and recommendations.

These fraudsters argue that they have given minimum 40% return to their old clients. When people ask for trial tips before subscribing to their tips and recommendation program, they easily agree. {Although, most of the good companies clearly deny recommendations without complete registration}.

Many people who try these trials become victims of these fraudsters. All the tips provided by them during the trial period are 100% accurate. Seeing the results of the trial period, the traders/investors subscribe to the monthly/yearly recommendation plan of these fraudsters. They pay a high fee to subscribe to these tips. However, after the registration, none of their tips works well.

Now, let us see how these fraudsters are able to provide 100% accurate recommendations during the trial period.

Suppose, these fraudsters agree to give a trial period for 3 trading day. That is, they agree to give 1 recommendation to buy or sell a stock for three trading day. But there is a hidden side to this scheme that the investors do not know. During these three days, they don’t send the tips to just 1 person. They generally send the tips to thousands of people.

Let us say, they started with 1000 people initially to send the tips.

Day1: On day 1, these fraudsters send messages to sell a stock to 500 people and to buy to other 500 people for the same stock. Obviously, either the stock will go up or go down (they generally choose a volatile stock so that the probability of stock not changing price is zero). Therefore, on day 1, they have send a successful tip to 500 people. They, discard the other 500 people for whom the tip didn’t worked.

Day2: On day two, they again send message to sell another stock to 250 people and buy the stock to other 250 people. Obviously, again one group will receive correct recommendation. They again discard the other group whom they sent wrong tip.

Day3: On last day of tip, they send buy suggestion to 125 people and sell suggestion to other group of 125 people. Hence, 125 people will receive a correct tip for three consecutive days.

Now, these 125 people will now think that all the recommendations provided by these fraudsters for three continuous days are correct. Therefore, many of the people from this group will subscribe to the tips and recommendation plan and become a victim of one of the most common scams in Indian stock market. Let us assume that the charge for sending tips is Rs 15,000 for a year. If even 100 people are trapped in this swindle, these fraudsters easily make around 15,000*100 = Rs 15 lakhs.

Soon after subscribing to the tips from these fraudsters, the investors/traders start losing money. The tips aren’t working anymore. Overall, these people lose they money apart from paying a heavy registration fee for taking tips and recommendations.

Also read: 6 Reasons Why Most People Lose Money in Stock Market


2. Pump and Dump:

Pump and Dump is a micro-cap stock (penny stocks) fraud, where the fraudsters try to inflate the price of these micro-cap stocks by providing misleading information to investors/traders. They try to increase the price of these penny stocks by giving the fake news.

For example, If the fraudsters want to increase the price of XYZ microcap stock, then they will send messages like a big company is taking over a that stock; or that micro-cap stock is giving a bonus of 1:1; or A large-cap is buying 50% stake of that micro-cap stock etc

The fraudsters want the retailers to buy the shares of these stocks as much as possible. Let us see what the main aim of these fraudsters is.

  • First, these fraudsters buy a cheap penny stock at a large volume.
  • Then they send fake messages or emails to millions of investors/traders recommending them to buy that stock.
  • Those who take this news as true, start buying stocks of these companies.
  • Because of this increased demand, the price of that stock starts increasing.
  • When the share price reaches a good price, then these fraudsters sell their stocks and get good returns.

After selling their stocks at high prices, these fraudsters then stop sending email/messages to the people. Moreover, the price of these stocks becomes very volatile, as they are not worth that high price. Hence, soon the price of these stocks falls heavily and the retail investors lose their money.

If you want to get in-depth knowledge about Indian Stock Market, I will highly recommend you to buy this book: How to avoid loss and earn consistently in the stock market by Prasenjit Paul


3. Fake messages in the name of brokers.

Many people invest in the stock market on the recommendation of their stockbrokers or advisers. As these people trust blindly on their brokers, they don’t research much about the stock after receiving the recommendation/tips. Instead, they just buy these stocks trusting their advisers.

In this scam, a lot of fraudsters, trap the retail investors/traders by using their trust in their brokerage firm. They send messages in the names of their brokers recommending them to buy certain stocks. As these people, misunderstood the message and think that it is sent by their brokers, they buy the recommended stocks.

However, as the recommendation did not truly send by their brokers. Hence, the stock prices fall soon and these investors/traders lose a huge amount of money.

Let’s see why these fraudsters send these messages to retail investors/traders.

Initially, these fraudsters send the recommendations to buy the same stock to their paid subscribers. Then, they try to inflate the price of these stocks by sending fake messages in the name of registered brokers to general people. When the stock price starts increasing, they suggest their paid subscribers sell the stock and get a good return. Therefore, their paid customers are satisfied with the recommendation and continue to their monthly/yearly paid recommendation plan.

In the end, it’s the retail investors only who end up losing their money by blindly following the fake recommendations. This is the third most common scams in Indian stock market that every investors/trader should be aware of if they want to safeguard their money.


Although, not all advisory company try to loot their customers and some give good guidance and recommendations. Still, it is advisable to stay away from free stocks tips and recommendations of any type. After all, no one cares about your money more than you.

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Tags: Most Common Scams in Indian Stock Market, Stock market scams in India, 3 most common scams in Indian stock market, pump and dump scam in stocks, scams in stock market India, stock market scams India, common scams in stock market