Fundamentals of Investment

If you are planning to invest in share market or mutual funds, there are three types of investment options available for you. These investment options can help you decide how you would like to invest on share market to get a reliable profit. The investment options are categorized based on the returns they provide to you. Though we all know that the amount we invest is also responsible for the profit we would get, the investment options are not directly related to the value we invest. It is independent of the amount you invest in share market or mutual funds. Irrespective of the amount we invest in market, we have three investment options we can choose upon.

Any market will have bullish trend as well as bearish trend. There are few things that we have to be clear on before we go and invest in share market or mutual funds or even cryptocurrencies. Listing out some important points to consider before investing. This will let you have more clarity before you invest on stock market. I would rather say, these are few questions that you can ask yourself before you start investing in share market.

  • What type of investment are you going to make, short term or long term?There are two types of investments short term and long term investments. Short term investments carries more risk and can provide you high profit as well as high loss. Long term investments are usually profitable. If you choose the right stock or mutual fund, you can see a good profit margin. Before you start investing, it is ideal to choose your term plan to either make it short term or long term.
  • How much money have you planned to invest in the market?If you are a beginner, it is advisable to experiment the market and your luck with a small amount of money. Later when you gain confidence and if you are ready to devote more time and money, you can go for high value investments in the market. While doing so, you have to make sure you have enough money to run your basic needs. If you invest more hard earned money in market and end up in loss, you should still have other sources of income to support you.

  • What is your profit expectation?It is ideal to set a profit expectation. When you see a good profit, a greed will emerge in your mind asking you to look for more profit. In such cases you should be clear in deciding how much profit you are really expecting. If the profit percentage reaches, you should be willing to exit from the stock and invest on something else. This criteria is for short term investors. If you are a long term investors HODL is the mantra. It can be quite difficult to predict the profit expectation for a long term investment.
  • Do you have any backup money available to continue your life if at all you end up in a huge loss?The money that you invest in market should not be the only money that you possess. If you suddenly end up in a huge loss in stock market and if you think it will take some time for your to recover from the loss in the market, you are stuck. You should either keep your portfolio frozen or book a loss. To handle such cases the money that you invest on share market should be separate from your regular money. There should not be any dependencies on the money that you invest in share markets.
  • Do you have time to study the market?Studying the market is very important for any investor. You can never end up being successful if you do not have a proper knowledge about the market. If you do blind investments, you will end up buying a stock when it is falling and end up selling a stock when it is raising. Another important thing in investment is that you should do your own study. People who speculate and interpret about the market can be really interesting but it may not work our for you. You have to do your own research in order to be successful and stay confident.
  • Is this your only source of income?Having share market income as the only source of income is mere madness. Unless you have other passive income sources, share market investments cannot be considered as the only source of income. The income from share markets and mutual funds are usually fluctuation. At one point in time it can give good profit and another point in time it will make you end up in huge loss. Any investor should first have a backup plan or other source of income if share market is not working out for them.
  • Are you ready to take risks?If you see the mutual fund ads, you will be able to see a disclaimer as follows “Mutual fund investments are subjected to market risks. Please read the offer document carefully before investment.” Share market investments and mutual fund investments involve lots of risks. If the whole market falls due to some world war or other war like factors, all the stock prices will fall. Even people who don’t really have any impact or who don’t see any impact sell their holdings as they panic seeing the market. So, if you are planning to become an investor, it is important to know about the risks first before you try to make some money from the market.

Hope the above questions and explanations would have triggered some light clearing the grey areas about investment that you had in your mind. I will try to write more investment related articles in the future. If you have any comments or thoughts please share in the comments section.

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