Looking for ways to make use of your saved money to double the sum? Get into your portfolio investment where stocks can be used up to 30% from your saved fund.
As a beginner in this field, let’s understand what the stock market is and what the different ways are to invest.
What is the stock market?
Stocks are a proportion of shares owned by a company. The stock market is a platform where investors buy and sell stocks from publicly traded companies. It is an investment method where you are doubling the sum that you own now. Think of it more like a big store where people buy and sell tiny pieces of companies called stocks.
Why do we invest in the stock market?
Investors use stock markets to build wealth. It is useful for the companies as well as the individuals who own stocks in those companies. There are companies that let people buy their stocks. They do this to help their business grow. We individuals use the stock market, where we can make our saved money grow by investing in different companies.
How do the stock markets work?
- Buying and selling:
When you buy stock, you are buying a tiny piece of the company. Now, when you want to sell it later, you can sell the same stock at a higher price. If the company does well and the value of your piece grows, you will have more money than what you started with.
- Benefits for Public Companies:
By having individuals gradually invest in their stocks, companies can raise the capital to fund their operations. The stocks that are issued by the company make them more credible and popular in the public eye. To make their business operations grow and develop, the company issues stocks.
- Dividends:
A company issues dividends when it makes a profit. They are like a thank-you gift from a company to the people who own its stocks. Companies usually distribute dividends once every three months. Some companies give a part of their earnings to stock owners regularly, which is like getting a bonus just for having their stock.
Ways to Invest in the Stock Market:
Mutual funds:
A mutual fund is a pool of money collected from many investors to buy different investments like stocks, bonds, or other assets. When the investments grow or make money, everyone who has invested in them gets a share of those gains. This is like getting a piece of the pie based on how much money you put in. Mutual funds offer diversification where an investor can access a wide range of assets, reducing risk.
How to Invest in Mutual Funds:
- Choose a mutual fund : Research different mutual funds based on your investment goals, risk tolerance, and time horizon.
- Open an account: Contact a brokerage firm or financial institution that offers mutual funds. Open an account to start investing in mutual funds.
- Investing: Decide how much money you want to invest. You can invest in a lump sum or set up regular contributions.
- Monitoring and reviewing: Always keep an eye on how your mutual fund is performing. You can use an application to track all your gains and losses.
- Diversification and Risk Management: Invest in a lot of diversifying funds so that they can align with your financial goals and reduce risk.
Mutual funds are a pool of funds, and by investing diversely, even if one incurs a loss, you always have another to gain profit from.
Types of Mutual funds include Stock Mutual funds, Bond Mutual funds, Asset Allocation Funds, Money Market funds and Index funds. You can invest in any one of these funds as it offers different benefits and focuses on specific investment strategies.
ETF (Electronic Traded Fund):
ETFs are like a big basket that holds many different investments, such as stocks, bonds, or commodities. An ETF is like a big box of toys that many people can buy and share. A financial institution, such as Vanguard, BlackRock, or State Street (SPDR), creates and manages an ETF. You can buy or sell ETF shares anytime of the day, just like buying a toy from your box whenever you want.
How to invest in an ETF:
- Decide which ETF you want to invest in based on your investment goals and risk. Thoroughly research the ETF you are interested in. You can book as many shares as you want, depending on your budget.
- Open a brokerage account with a brokerage firm or through an online broker.
- Keep track of how your ETF is performing. Consider reviewing it to see if it aligns with your financial goals.
- If you want to sell your ETF shares, you can do so through your brokerage account.
Examples of ETFs include Invesco QQQ Trust, Vanguard Total Stock Market ETF, etc.
Debentures:
Companies or governments issue debentures to raise funds from investors. These debt instruments represent loans given to companies in need, and companies promise to repay the money lent, along with interest, after a specified period Issuers of debentures pay interest to investors regularly, annually, or semi-annually. They are considered safe because issuers promise to repay the borrowed funds.
Types of debentures:
- Convertible debentures can convert into company shares after a certain period.
- Non-convertible debentures cannot convert into shares and are repaid only with interest.
- Redeemable debentures: Promise to repay the borrowed money after a specified time, like lending a toy with a return date. They have a fixed maturity date.
- Irredeemable debentures: Do not promise to repay the borrowed money by a specific time, like lending a toy without any return date. There is no fixed maturity date, so there is no deadline on when the company has to pay the amount back.
- Secured Debentures: These debentures are accompanied by some collateral or specific assets pledged by the issuer, providing security to debenture holders.
- Unsecured debentures: These debentures rely solely on the issuer’s creditworthiness to repay the amount and interest. It relies on the promise to pay back by the issuer.
Sovereign Gold Bonds:
Sovereign gold bonds are financial instruments issued by the government, specifically through the RBI. When you buy SGB, you are essentially buying gold from the government. Instead of regular money, save your money in the form of gold. Investors buy SGB to invest in gold without the hassle of storing physical gold. The government uses the money raised from these bonds for various projects and needs.
You can also hold these bonds in a demat account. SGBS has a tenure of eight years, with the option to exit after the fifth year on specific interest payment dates. At maturity, they receive the equivalent amount of the prevailing market price of gold in cash. We can also sell SGB on the secondary market if you hold it in demat form. You may incur brokerage charges and other fees for selling SGBs on the secondary market. SGBs are considered safe because the government backs them.
Systematic Withdrawal Plan:
SWP allows mutual fund investors to receive regular income by withdrawing a fixed amount from their investments while the remaining amount is invested. It allows you to withdraw a certain amount of money regularly from your mutual fund. This can be monthly, quarterly, semi-annually, or annually. You can decide the amount of money that you want to withdraw, similar to getting coins every month from your piggy bank. People can use SWP for regular expenses and other expenses as needed. Most retired people can use SWP as a means of getting a salary.
How to Invest in SWP:
- Choose a mutual fund where you want to begin your SWP.
- Fill out the form with the specific amount that you want to withdraw and how often.
- The mutual fund will take money from your investment and, at the same time, credit the money into your account during your selected plan.
- The remaining money will still grow despite withdrawing some of it. Think of the money withdrawn as more like pocket money so that you can use it whenever you want.
Conclusion:
These are some of the ways to invest in the stock market as a beginner. Remember, it is never too late to invest in stocks. It could widen your savings and build wealth. It enhances our careers and offers valuable learning opportunities. If you are confused about how to begin investing, seek advice from a financial advisor. There is always a medium or a mediator to teach or learn about stock marketing; the risk and the gains and losses are part of the journey that you are entering. Seeking financial advisors or financial professionals can enhance your investment strategies. As a beginner, start investing in something small, then move into the intricacies of the investments. A good investor is someone who has patience and discipline along with clear investment goals.
References:
https://groww.in/p/stock-market-basics
https://www.bajajfinserv.in/what-is-debenture
https://www.rbi.org.in/commonperson/english/scripts/FAQs.aspx?Id=1658
https://groww.in/calculators/swp-calculator
Written by Bhavya S