The boom in the stock market is attracting new investors towards equities. Advices from brokerage firms on TV and digital media, interviews of fund managers and YouTube channels of financial influencers have kept the market captivated. The fall in the rate of bank FDs and the decreasing interest of small savings schemes is prompting investors to invest in the stock market. New investors are investing directly in shares or IPOs. According to the data of Central Depository Service Limited, the number of newly opened demat accounts has increased by 38 percent to 40 million since January. There is also a lot of investment in NFO of mutual funds. But in this boom it is important for new investors to understand some things.
1. Market bullishness is temporary
Young and new investors are entering the market influenced by social media advertisements and financial influencers. The bullishness of the market is enticing them. But most experts say that this rally will not last long as there is liquidity in the market due to soft monetary policy. Central banks around the world have kept interest rates low to support growth. But the market situation will not be like this in the coming time. Therefore, investors who are going to enter the stock market, they must keep some things in mind.
2. Investing in shares directly without knowing the loss deal
The poor performance of some mutual funds in the recent past has prompted investors to invest directly in stocks. But investing money directly in stocks can be extremely risky. But it can be more dangerous for new investors as they do not have enough knowledge to invest in equities. If you do not have research (technical and fundamental analysis) experience and time, do not invest in direct equity. Do not get influenced by the opinion of experts given in TV or digital media or newspapers. If you do not have enough experience, it would be better to invest in equity mutual funds than directly investing in stocks.
3. There is risk in equity mutual funds too, take a wise decision
It is not that there is no risk in equity mutual funds. However, diversified mutual funds can give you a steady return. While investing in mutual funds, investors always have to take the risk of at least 10 per cent fall in returns. However, in a diversified fund, the fund manager can reduce the risk by removing the loss-making stocks. Never invest in mutual funds just by looking at past returns. By the way, the advantage of investing in a diversified fund is that the risk is divided among the shares of many companies. Whereas by investing directly in the shares, the risk is concentrated on the shares of one or two companies.
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4. Stay away from IPO and NFO
New investors should avoid investing in IPOs and NFOs as far as possible. Listing gains may seem like an attractive aspect for investors, but the bet of making early gains can be risky, as most IPOs are expensive. Even new investors should avoid investing in mutual fund NFOs unless there is some specialty in them or the investor is not sure that the NFO theme will work. Low NAV does not mean mutual funds are cheap. Cheap mutual funds do not mean that you will get higher returns. The investment goal should be for the long term and never invest in NFO. The tendency to make money within just eight to ten days should be avoided.
5. Avoid Investing in Thematic and Small Cap Funds
Thematic and Small Cap Funds performed well last year. Last year, the small cap fund gave returns of up to 89 per cent. But thematic or small cap funds are quite risky. New investors should avoid investing in it. Investing in thematic funds is a part of strategic investing. Thematic and small cap funds should not be invested if the investment goal is not a long term one.