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Guidelines for Investments
Starting with investment
 
In our today’s life, we are so busy with our office work, assignments, projects & presentations that we do not even have proper time to eat. We are busy with such lifestyle that we have no time to sit down & have a talk & share a laugh with our parents. In such hectic schedule, do we think about our future? Do we think about what are we going to do after retirement?  Do we really the issue of safeguarding our future seriously? Have we ever thought of education of our children, provision for their higher education? In short it all comes to a common question,” have we really thought about ‘INVESTMENT’ for our future?”
 
It is very wisely said that ‘you should invest from the moment you start earning’. But what we actually start when we start earning is ‘savings’ & not ‘investing’. Always remember the money or the wealth multiplies itself when it comes into rotation. Stagnant money never grow. Hence keeping money in your salary account or saving bank account is never going to increase your wealth & when there are so many opportunities out there in the market, it is pointless to keep money stagnant.
 
Generally, the people from non-commerce background face this question with a higher degree of difficulty i.e. “how should I invest my money?”
 
The Wake up Call
We face this problem majorly in the month of March. The issue of taxation arises. Employers ask employees to provide them with the investment proofs or their tax will be deducted in full. Now one starts thinking about where to invest to avoid the tax as many of us have not thought of this early in the year. Then, some investment or Mutual Fund Company or insurance company approaches you & their marketing person who always wears a large grin on his face tells you how his fund/insurance policy (most of which are ULIP schemes) is doing great performance & how it will save your tax. Without understanding & thinking much about the fund or insurance scheme, you invest the required amount (required amount means amount required by that “all-the-time-keep-smiling” marketing person to complete his target and not the amount required by you mainly because you never think) & yessss….. His target gets completed and he leaves with a broader grin on his face and your money is blocked for at least 3 years & you don’t even know where your money is going to be invested. Then, one fine day your friend casually tells you about investment made by him and you also tell him what you have done & he says,” oh man, you should’ve told me before. I would have got you a much better investment plan” & all you can do is nothing but regret.
 
Why this happens in most of the people’s cases? Because we ignore the investment till the end.
 
Investment is always future oriented. If we don’t get time from our presentations to have our lunch, how are we going to get time for thinking about future? But, it is must because if you do not think about future, you cannot manage the future.
 
Beginning with investment
When you start investing you should invest only after considering a few factors
1.                  Your Income
2.                  Your household needs
3.                  Your long & short term objectives
4.                  Your risk taking abilities
 
While investing, the golden rule is “invest only & only when you have surplus funds”. That is, after meeting your household needs, if any surplus remains, then you should invest that amount. Do not borrow and invest the borrowed money
 
Before doing any investment, it is very important to recognize your immediate/short term or long term needs. By short term we mean the period of 1 year & long term means period more than 1 year or to be precise 3-5 years. 1-3 years period can be taken as medium term. Beyond 5 years is ‘very long term’. You need to identify your short & long term needs or objectives which you have set for yourself.
 
Also, your risk taking ability plays an important role in planning your investments. And the risk taking ability mainly depends upon your age, your income & your household responsibilities. If you are 25 years old but your income is comparatively less, even then you can take a considerable amount of risk. But if you are the only breadwinner in your family and have whole of the household responsibility, then it is better to invest in low risk instruments like F.D.Rs, PPF or Govt bonds etc. & if all the conditions are favourable, then you can invest according to the thumb rule. The generally followed principle is “you should invest such proportion of your portfolio in equities (i.e. risk instruments) as equal to (100 - your age). For example, if your age is 25 years then ideally you should invest at least (100 – 25) 75% of your portfolio in equities”.
 
I will discuss all the investment options in details one by one under this blog. But to sum up, on investment beginning, it can be said that if you wake up early & start investing, you will always be on the winning route of your life.
 
Equities
For a beginner investor, it is rather a bit difficult to advise on equity shares without knowing his/her risk taking abilities. But I am still writing about it because it covers many major aspects in investment markets including precautions that are to be taken by the investor as to their brokers, the risk analysis, the timing of trading, portfolio balancing etc.
As it is rightly said, Equities are such investment instruments than can outrun any kind of investment option in long term.
 
Market can be classified in two segments viz. Primary market & Secondary market. Primary market is concerned with initial public offerings by the unlisted companies popularly known as IPO. When a company completes formalities of SEBI of getting listed on a stock exchange, it offers its Equity Shares through IPO.. Once the company gets listed, its shares can be traded easily on the stock exchange. This activity is carried out in secondary market. In secondary market shares of different companies can be easily bought & sold by traders and investors.
 
De DEMAT Account –
A basic need First step towards investment in share market is to open a Demat account. A Demat account is just like a bank account. Just like you can keep your money safe in bank account, your shares are kept safe in a Demat account in electronic format. Also, like you deposit money in a bank account, you can buy the shares and they go to your Demat account. Then, as you can withdraw money from your account you can sell off shares you and they get debited to your Demat. Moreover, just like you can transfer your money from one bank account to other bank account, you can transfer the shares/ securities from one Demat account to another Demat account. Demat means Dematerialisation. Earlier, the buyers of the shares used to get a share certificate in paper formats. The Physical shares were vulnerable to fraud, theft and Mutilation. Transactions in Physical forms were also prone to fraud and forgery.  These risks are mitigated to a great extent by Electronic or De Mat form and gave investors a clear, neat, easy and safe process to trade in the Share market. In Demat, shares and securities are converted into electronic form and kept in Demat account, thus making the process of trading and holding the shares easy, safe and transparent.

Before going into details of opening the demat account, selecting a demat service provider, let’s have a look at the system in share/ securities market. 
1 SEBI (Securities Exchange Board of India) – this is the apex body that governs and controls the securities market. They make rules and regulations for imposing control over transactions and process in securities markets. 
2 Stock Exchanges – These are corporatised entities where shares and securities of various companies get listed. There are total 22 Stock Exchanges in India, NSE, BSE are being largest among them.
3 Depositories – they are intermediaries in the securities markets. Presently there are two depositories operating in India viz. NSDL and CDSL.
4 Depositories Participant – These are entities registered with Depositories and provide Demat account services through their brokers and sub brokers. To open a demat account; you have to approach a depositories participant. While choosing a DP, you must be careful. While selecting a DP with whom a Demat account is to be opened, some of the important aspects you should look forward are:  History, reputation of the DP
5 Services provided i.e. e-trading facility, telephone trading facility etc.
6 Account opening fees charged, Annual Maintenance fees
7 Brokerage charges by him
8 His payment, credit terms etc
 
While opening the account it is advisable to open the account with joint names. Joint holders may be your parents or spouse as per your wish. And a nominee is anyways made compulsory.

Once you have opened the Demat account with your broker, you are ready to trade in the market.

Trading in the Share Market- Precautions
 
1 Patience: Equity gives best returns and outruns other investment instruments in long run.
 2 When you open Demat Account, ask for Member Client Agreement copy. Learn to file everything because as and when you to trading, you get a contract note as proof of your transaction which you have to preserve for preparing your account at the year end and calculate profit or loss.
 3 While investing, never rely on tips by people & especially the broker.
 4 In equity market, there are two types of people. One is ‘Gamblers’. These kinds of people do intraday trades a lot. They generally rely on brokers’ tips, others’ advices, their own intuitions and guesses etc. they actually play gamble in the market.
And other category is that of ‘investors’. They never rely on tips given by others. They study the financial position of the company, analyze Financial statements of the company in which they want to invest and then take a decision A wise investor keeps himself away from intraday trade. A famous broker has put a signboard in his office saying,” If you do intraday trading, I am in more profit than you are”.
 5 Diversify the portfolio: Invest in various industries so that you will have a balanced portfolio. E.g. if you invest in some stocks of IT Industry, some stocks of cement industry, steel, pharma, banking, financial services, infrastructure then your risk gets diversified and balanced. Moreover, portfolio must contain few such stocks which change according to indices and few such stocks which against the indices. This balances the portfolio even when the market is down.
 6 Study the company: When you are thinking of investing in a particular company, you should study the company’s performance over the years. The movement of its stock for past 52 weeks, that shows the volatility trend of the stock, history of the company, dividend record and other statistics, study of Balance sheet and Profit & Loss account (at least past 3 years) is a must.
 7 For long term purpose, always select ‘A’ group companies like RIL, L & T, TCS, Infosys, SBI etc. because these give you the best returns in terms of dividend as well as value of shares. Dividend record of Infosys is well known. Mid cap stocks can be considered for 6 months to 1 year as they are moderately risky.
 
8 Tax element: If you sell shares within 1 year, then you are liable to pay tax on short term capital gain. But if you sell the stock after 1 year, you do a long term capital gain which is exempt from the tax.the returns.

Auther of this article CA Mandar Joshi can be reached at mandarjoshiandco@gmail.com
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