Investing in the stock market is one of the best ways to achieve one’s financial goals. However, investors need to be cautious as stocks are also considered one of the riskiest instruments. Additionally, investors should look at various parameters before starting equity investments.
Here's a checklist of things to do before you start investing in equities:
According to Hemang Jani, Head - Equity Strategy, Broking & Distribution, Motilal Oswal Financial Services Ltd, the most important factor the investor should evaluate is the purpose of investing.
“Investors should check if the investment is to make short term money or generating long term wealth. Whether the investor has any short to medium-term commitments to cater to like travel, the child’s higher education, marriage, etc. or wants to build a long-term portfolio and pass it on to the next generation,” Jani opines.
The answer to these questions will significantly improve the performance and investors will be able to efficiently manage their risk appetite, which will reflect adequately in their trade plan.
Check risk appetite
As per Jani, it’s equally important to know the risk appetite which means how much risk is the investor willing to take. Hence, depending upon the same he/she has to select the stocks from large, mid, and small-cap space.
Decide the time frame
The time frame/horizon for which the investor is willing to invest is very critical, to get the real result of equity investing. How much time he/she has to do research and tracking is also important to factor when it comes to direct equity investing.
Also read: How to invest in IPO through Zerodha?
Define 3 key price points
According to Raunak Karwa, Founder and Chief Executive Officer, FinLearn Academy, it is imperative to define the entry/exit points and position size of stock investing. Additionally, investors should also finalise the stop loss they are okay with.
Investing in direct equities varies vastly to investing via SIPs, MFs and other investment schemes.
In the words of Karwa, "In such, given that ideally, investors are taking these investment calls independently, without an advisor, educating themselves on the nuances and intricacies of the stock market is highly important. Understanding which data points to track, how to interpret certain movements, looking at the correlation that exists and the sentimentality of the market are just some key points to stay in-tune with. In that regard, education is key prior to entering and building a career in the investing space,” explains Karwa.
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First Published: IST