4 Rules to Grab Money from Stock Market

4 Rules to Grab Money from Stock Market

In India, more than 95% of the population has never invested in the market. They have heard about how one has made excellent returns but they do not have anyone to guide them. Even when they seek advice from brokers and distributors most of the time they are misinformed, misguided and sold high brokerage or commission products. So if you are one of those who is thinking of investing? Here are some lessons for you before you jump into the market.

1. Invest for long-term

Over 10 years, stock markets have given returns of more than 15% annually. Such a return is better than other asset classes such as Gold and FD. Hence, one should invest in the stock market for a long-term rather than day trading which is very risky since it is very hard to predict the mood of the market for a day. In addition, investing for years carry less risk and in long term excellent companies become more valuable. As shown in the table below, in last 16 years, 54% times BSE Sensex has given daily positive returns and 69% times BSE Sensex has given a yearly positive return. So it is evident that if the investment horizon is long there are more chances to get positive returns.

2. Avoid derivative and do not borrow to invest

One should avoid trading in derivative products such as options as they are very risky products. Derivatives are leveraged products that can wipe-out your entire wealth. An investor should do an in-depth study before getting into derivatives. Besides, naïve investors should not borrow money to invest, one wrong investment can erase your wealth.

3. Invest in Mutual Funds

Native investors should invest in mutual funds since they are managed by professionals. Investing in mutual funds lowers your risk since they are diversified. Investing in the stock market requires a lot of market knowledge and time. If you do not have knowledge of the market or you do not have time for market news, you might get trapped and lose money. In addition, you can opt for SIPs instead of investing lump sum amount.

4. Do not time the market

Most investors also try to time the market. You should follow a simple rule, “Invest if the valuation of the company is cheap and its business prospectus is good regardless where its share price is”. History has shown that in the long-run market has recovered from the various crisis, despite how severe they are.

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