In this article, I will help my fellow Indians (and maybe some of my overseas readers) on how to invest in the stock markets of India. The two major stock markets of India are – the Bombay Stock Exchange and the National Stock Exchange. And the process of investing in Indian stock exchanges is the same as any other.
Firstly, I will elaborate on the steps one needs to follow if they have just started investing. Then next comes the best investment opportunities for investors in Indian stock exchanges.
So, shall we?
Get a demat account and broker
Any investor looking to invest in any stock market needs to have a demat account, which holds securities in electronic or dematerialized form. After getting a demat account, you have to hire a broker to trade for you.
Analyzing various factors
Before making a portfolio and investing in it, analyze the various important aspects. These aspects can be your budget, risk-bearing capacity, financial requirements, long-term and short-term goals, and such.
Make a portfolio based on your analysis of various aspects. A good portfolio consists of at least ten securities. Implement various methods like diversification and checking the P/E and ROA ratios. Making a great portfolio is a very complex process. So if you want to learn how to make a great portfolio, then The Thought Tree will help you.
Observation of your portfolio to keep it updated and add or remove any stock that is not fulfilling your requirements. Staying with the day-to-day changes in the market. This gives you an edge over other investors and trains you to have a keen observation.
Instead of investing a huge capital at once, break it up and regularly invest your capital. This helps in reducing risk while investing and also reduces the effect of volatility on huge investments.
Give it time
Patience is the key to get that sweet reward. Give your investments a good amount of time before actually hoping for a decent return. It may take a lot of time, or not. A stock market is a crazy place, but give it time, and it will give you money.
Let us see the best investment opportunities in Indian stock exchanges.
The best investment opportunity in India is easily direct equity. It may not look good to people who want to invest for the long term at first, but the great thing is – Direct equities have a higher rate of return over the long run than any other asset class.
Now you may invest in blue-chip equities or penny stocks; it is totally up to you. Penny stocks are generally looked at for short-term profits, whereas blue-chip equities are gazed upon for their long-term returns. The benefit of investing in penny stocks is the potential for high gains, but it comes with high risk. Blue-chip stocks are steady and have stable returns, plus they give the investors dividends regularly.
The best blue-chip stocks in India are Reliance Industries Ltd, TCS Ltd, Infosys Ltd, ITC Ltd, etc. The best penny stocks currently are Vodafone Idea, HMCL, and so on.
Every other Indian household screams this term – MUTUAL FUND!
Mutual funds have made a name for themselves in India due to their stability, minimal risk factor, long-term run, and variety. There are Equity Mutual Funds, Debt Mutual Funds, Money Market Funds, and so on.
Equity M.F. is a mutual fund that invests at least 60% of its assets in equity shares. It has flexibility when it comes to being managed, as in it can be managed actively or passively. An investor can invest lumpsum or in installments (Known as Systematic Investment Planning, or SIP). Some major mutual funds are ICICI Prudential Mutual Fund, UTI Asset Management Mutual Fund, etc.
Debt M.F. is a mutual fund that lends your money to the government and private companies for returns. Instruments used in this mutual fund are debentures, bonds, government securities, and so on. These mutual funds have a near-zero risk level. Due to their fixed returns, they are also known as Fixed Income Funds.
Money Market MF is a type of mutual fund that takes you money and invests it in near-term securities, highly liquid. A very low level of risk is maintained with high liquidity. These M.F.s don’t carry a guarantee of principle. For further information, I suggest that you take up cool courses on the Stock Market.
Who doesn’t know real estate? It’s the physical property that consists of land and anything built on it and anything in it. Buildings, plots, farms, etc., are some examples of real estate. The next investment opportunity is a lot related to this one and is currently on the rise.
There are broadly four types of real estate – Residential, Commercial, Industrial, and Land.
Residential real estate refers to those properties that are used for the residence of people. It can be the home you live in, your vacation home, your condo, your duplex, and so on. This is the most common type of real estate.
Commercial real estate refers to those properties that are used for business purposes. This includes your malls, your gas stations, your shops, your universities, and so on.
Industrial real estate refers to those properties that are used for manufacturing and warehousing. This includes your factories, your storehouses, and so on. Land refers to the undeveloped, agricultural, vacant piece of earth. This may contain natural and human-made things.
Another type of real estate is Special Purpose. Special purpose refers to those properties used for special things like cemeteries, libraries, government buildings, parks, and so on.
Real Estate Investment Trust (REIT)
A real estate investment trust is a company that is quite similar to mutual funds. Instead of equities and bonds, this company owns, operates, and finances were income-generating real estate properties. REIT is traded like a stock. An investor in REIT can earn dividends from REIT without actually buying or managing any physical real estate property.
REIT is good for steady income but is not good for capital growth since they invest in real estate properties, and physical property does not have a sudden boom in their values. REITs invest in almost all of the types of real estate. Most of them can be traded publicly and are thus highly liquid.
The dividend given to investors is generated from the income of that particular property. E.g., If a REIT has invested in a mall, then the mall will give a part of its earnings to REIT, which will further distribute them to the investors.
There are three types of REITs – Equity REIT, Mortgage REIT, and Hybrid REIT.
Equity REITs are those REITs that own and manage their income-producing real estate. The main source of revenue is rent—the most common type of REIT.
Mortgage REITs lend money to real estate owners through direct mortgage or loans or by purchasing mortgage-backed securities. The main source of revenue is the difference between interest earned on mortgages and the cost of those mortgages.
Hybrid REITs are those REITs that possess the quality of both – Equity and Mortgage. So, hybrid REIT owns real estate, as well as holds a mortgage.
Again, there are three further classifications based on their trading – Publicly traded REIT, Non-traded Public REIT, and Private REIT.
The evergreen and the ever old – GOLD! Gold is a precious metal and a commodity trading over the world. Gold is really important for any country because the financial system of any country has tons of gold reserves that determine the power of their currency. A country cannot print more currency than the gold reserves they have.
Why gold? It has been used since ancient times. It will always be important due to its properties. It is a long-term passive investment for any investor. They can buy it and forget it, and then sell it when the price is right.
The majority of Indian households have physical gold, and they intend to keep it that way. Well, that was that. For further information on Indian Stock Markets, I suggest that you take up cool courses on Stock Market.