Inspite of growing interest in stock markets over the past five years and increasing participation from first-time and young investors, many Indians still nurse a fear for investing in stocks, which is considered by financial analysts as one of the most profitable avenues. Though proliferation of online and mobile platforms is providing opportunities, ensuring convenience for investors to plough in money into stock markets and drawing new investors to the capital markets, industry insiders feel that still a lot more people need to invest in equities to ensure stable capital markets and benefit from the habit of investing in stocks.
Kamlesh Rao, MD and CEO of Kotak Securities, one of the leading stockbroker platforms in the country, in an interview with The New Indian Express, gives several suggestions to the new investors on how to make the most of investing in stock markets and makes an effort to dispel fears among first-time investors. Excerpts:
Of late, especially post demonetisaton, investments are moving from physical assets to financial assets. Many new investors, especially tech savvy youngsters, are investing in stock markets. But still many Indians fear stock markets, though they are interested. What care can these new investors take to protect their investments and benefit from stock markets?
Yeah, still many Indians fear investing in stock markets. While we are a nation of more than 1.25 billion people, just about three crore people have Demat accounts and just about 70 lakh retail investors actively invest in secondary markets, which is very negligible. There is a need to dispel fear among people about investing in stock markets. For the beginners, I suggest them to start investing a portion of their surplus income in equities through SIPs. Most of the equity SIPs, especially large caps, can be ideal for the beginners. If not in equity SIPs, even buying strong equities in small numbers every month, can also add up to large returns in the long run. If you observe the market over the past two to three years, investing in some equities has given better returns than mutual funds (MFs), if done based on proper research and information.
Which is better for the new investors — to take advise from brokers and financial advisers or do their own research?
Initially, it is better to bank on their advisers. If they have the requisite time and inclination, they can do their own research and take decisions. But it is better to invest in small amounts initially. For instance, if a new investor wants to buy 100 shares of a specific company, it is better to buy 10 shares in several installments, rather than buying all the shares at once. In case investors are acting upon their own research, then they should depend on information provided by reputed brokers and trusted platforms rather than simply investing based on some tips or reports circulating among various digital platforms.
What percentage of one’s investment can be put in equities by a first-time investor?
Among the surplus income from one’s salary or earnings, one-third of amount can be invested in equities, one-third can be invested in MFs and one third can be invested in fixed deposits. This can be an ideal and safe option for new investors, to try their hand at equities.
What are the common mistakes done by new investors? How to avoid them?
One of the most common mistakes done by beginner investors is the timing of the market. New investors should avoid timing the market at any cost. They usually enter the market when the market is upwards and exit downwards. The best time to start investing in the stock market is when the upwards movement is expected to be more than the downwards movement. NIFTY is right now at 10,800 mark and is expected to move upwards till 12,000 mark, while the downwards movement may be 10,200 or 10,300. As the expectation of upward movement is much higher than downward movement, this is the right time for the new investors to enter stock markets and start investing in equities.
How much returns can beginner investors aim for, while investing in equities?
If invested in good equities, new investors can expect 15-20 per cent returns in a year. This is a healthy rate of return, when compared to any other alternative.