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Investment infoSome people invest for growth (to build up their wealth) and some people investment info for a regular income. When investing for growth, it is far more common to do.
Here we tell you what not to do.
1. Don't buy on tips
The market is full of 'investors' who appear to think that the sole way of making money is through tips.
But tips are not solid investment info. They are not based on research. Such stocks are more likely to fall faster and harder when the market turns.
Do your homework. If you are not capable of doing so, then invest in equity mutual funds where the fund manager does his stock picking for you. Here too, go by the fund's performance, not just another tip.
2. Don't chase the latest performance
Far too many investors end up making investment info based on immediate past performance. In a bull market, there are plenty of stocks and funds that look just great and have been rising fast.
But the real test lies in how much this stock or fund falls when the market turns bearish.
Small cap and mid cap stocks get hard hit in such markets. Even where funds are concerned, look for those that have survived bear markets.
3. Don't buy anything you cannot understand
Before you buy an investment, understand how it works and why you are buying it. If you are buying a stock, you must understand why you think it will rise. You must have an idea of what the company does, how much it will make, what a good price for it is and whether it is underpriced.
If you do not have the time and skills to analyse all this, then invest in a mutual fund.
4. Don't buy without a strategy
The first step is to have a strategy. You must be clear on how much you plan to invest in stocks or funds or other investments. Once you decide on that, then start looking for good picks within that investment. Don't start with the question: "Is there a good fund or stock to buy"
Instead start with: "How much can I afford to invest in stocks and mutual funds"
There are always good funds to buy. But that is not a good enough reason to buy one.
5. Don't ignore risk
If you do not want to incur any risk, then try the Public Provident Fund and post office schemes. But once you decide to invest in shares and equity mutual funds, you will be incurring risk.
In some cases, you may not even get a return. In fact, you may even lose your principal (the amount you invested).
Another way to see it is deciding when you should invest. In a bull market, when you buy a stock that has already risen substantially over the past few months, you are taking a higher risk than someone who bought it six months ago.
6. Don't ever time the market
Timing the market rarely works. No one can say for a fact in which direction it is going to move in.
The key is to invest regularly irrespective of the state of the market.
7. Don't hold on to losers
We all end up investing in duds, whether stocks or funds. Once you realise that an investment info is bad, there is no point in holding on to it. You will be much better off taking out the money and making a better investment.
8. Don't ignore expenses
Don't just jump in and out of stocks and funds.
Buying or selling a stock You will have to pay brokerage (fee you pay to your broker for buying and selling shares) and Securities Transaction Tax (fee you pay to the government when you buy and sell stocks).
Mutual funds too have loads and other expenses.
And of course, there is capital gains tax if you sell within a year. Read All you wanted to know about capital gains.
So don't simply hop in and out of shares and funds. Take a look at these other issues too.
We all know what to do with our money. Whether we do it or is a separate issue. Here, we tell you how to make sure you are not messing up when it comes to financial decisions. Read on to find out what you should not be doing with your money.
Give the government more than necessary
A friend of mine was recently cribbing about how much of tax he pays. When I asked him what he was doing to save on taxes, he said nothing. It was his first job and he was totally unaware of any tax breaks.
When the government gives you a chance to save on taxes, please use it.
Take medical insurance. You get a tax benefit on the premium that you pay.
Look at the investments that fall under Section 80C of the Income Tax Act. If you invest in them, you get a deduction of up to Rs 1,00,000 on your income.
The safe, fixed return instruments that fall under it are Public Provident Fund and National Savings Certificate. Read PPF vs NSC.
If you want to add some zing to your investments, try Equity Linked Saving Schemes. These are diversified equity mutual funds that have a tax benefit under Section 80C.
Do you have any dependents Take a life insurance policy. The premium you pay here is eligible for a deduction under Section 80C.
Are you looking at buying a home You get a tax benefit on the home loan. Read Repaying home loan Must knows and Paying interest on home loan
Spend it all
Our financial advisors often get flooded with queries from our young readers trying to manage their debt. Nearly all of them would have incurred the debt because of their lifestyle.
While all of us love to spend, there should be a limit on how much you spend. If you find you are saving nothing, it is worth it taking a good look at where your money is going.
A friend of mine told me that she would drop in at Barista (coffee shop) at least thrice a week and blow up around Rs 75 on each visit. It did not seem a huge amount. But when she added it up, it was Rs 900 a month. When she took into account the fact that she also eats out on weekends, she decided to save by just cutting down her trips to Barista.
Is your weakness hopping into cabs all the time Or shopping Or smoking Or eating out a lot
If you find yourself revolving on your credit, make an effort to find out where and why you are flashing your card so often and stop using it till you clear your dues.
Leave it all in the bank
A lot of readers write in and tell us they have huge amounts in their savings accounts because they don't know where to invest it.
You need to list down all your investment options.
You have the very safe ones which are backed by the government like RBI bonds (bonds by the Reserve Bank of India), NSC (National Savings Certificate is offered by post offices) and Public Provident Fund (offered by State Bank of India and other nationalised banks).
You can also consider bank fixed deposits and fixed deposits by other companies.
Read Want a fixed return investment to understand the various options.
Then, you have diversified equity mutual funds. You can also invest directly invest in shares.
If you will need the money in the short term, you can try short-term bank deposits or even liquid funds. But there is no need to leave huge amounts in your bank account. Read The safest mutual funds to understand liquid funds.
Put it all into one investment
Distribute your money evenly. Let's say you take home Rs 10,000 a month and manage to save just Rs 3,000. That is Rs 36,000 a year. Don't put all this amount in one investment.
Distribute this Rs 3,000 amongst at least two investments. Let's say you pick up a very safe investment like the NSC. This is backed by the Government of India and available at post offices. The rate of interest you will get is 8% per annum and the lock-in is six years.
Maybe you can open a NSC account for Rs 30,000 if you want most of your money safe. The balance Rs 6,000 you can invest in a diversified equity mutual fund or maybe buy some shares.
But don't put all your savings in the NSC or all of it in shares.
List down all the investments and then decide how long you want to block your money and how much of a risk you are willing to take. Then decide where to invest
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