How can you start investing in the Stock market with Rs 5000?The biggest myth about the stock market is that you need a large amount to invest. Such myths are stopping investors from starting early and creating their wealth. They keep waiting to save a large amount to invest in shares. No, it’s wrong you can start investing from your pocket money even. You can start as low as Rs.100 as an investment into the stock market and enjoy wealth creation over the longer run.
As there are some key points you need to keep in mind while starting with the little money:
How can you start investing in the Stock market with Rs 5000? The First and Foremost is to Understand Your Financial Strength:
1. Clarity about your financial goals:
This is all about that why do you want to grow your money? Why do you want to invest? Are you investing for making money or wanted to learn about the stock market at the initial level? Do you intend to save money for retirement, or some children’s education? The goal should be crystal clear.
2. Investment Horizon: Based on your goals, you must decide your horizon or time period and need to be aware of short term profit or long term- profit and choose the stocks wisely, which can beat your goals.
3. Assessing your risk tolerance: How can you start investing in the Stock market with Rs 5000? It’s a very important aspect to understand as it helps you to choose the right kind of stock. Try to measure the risk beforehand and identify in which type of risk bucket do you want it to enter?
• High Risk
• Medium Risk
• Low Risk
Learn the Basics:
How can you start investing in the Stock market with Rs 5000? You don’t need a degree, certification to enter and invest in the market. People from any wing can invest. What you need is a little basic knowledge about the stock market, must be aware of some terminologies related to stocks and need to know the fundamentals parameters including revenue, profit, debt profile and future aspects profile of the companies.
How can you start investing in the Stock market with Rs 5000? Additionally, you must be knowing the operation of a business, what type of product do that particular companies are offering, will they be good for a longer period or shorter period. Also, check the past performances of the companies, how they have performed so far whether the prices of the stalked companies have a steady increase or increase like a rocket, it helps to know about the volatility, what’s their PE ratio. This could tell about the future returns for the same. While investing you gradually become an expert in it. As we heard many times, that practice makes a man perfect.
Focus on your Savings:
How can you start investing in the Stock market with Rs 5000? It’s a major task generally for all, what you can do is to invest 10% of your monthly income or pocket money into the stock market, and gradually do it to 20%, which make you keep a track of your finances, on the other hand, you can invest some of the portions into the stock market or can invest into any SIP (Systematic Investment Plan).
Invest Carefully:
How can you start investing in the Stock market with Rs 5000? When Investors start with little money, they tend to put some stocks for a later since they are too expensive. For Example, an ABC Bank stock is Rs. 1600 per share, but you have an only investable amount of Rs. 1000, you won’t be able to afford it. But when you have enough amount to buy, tend to rush towards buying stocks such as an ABC bank among others.
How can you start investing in the Stock market with Rs 5000? While the company might be fundamentally strong, investing your funds in a lump sum at the wrong time can be counterproductive for you. According to experienced investors, the market can be overpriced, or maybe stock investment makes you today can be expensive. So wait for the right time to invest or wait for the market to be bounced back or a small correction to invest. Perhaps can find a good stock to invest in.
As we know to maintain our finances are must in the current time. There are many stock brokers who are offering the guidance related to investment in the stock market with whom you can invest your money and earn a good amount of profit.
Every trader or investors enters in the stock market with the hope of earning good money. Additionally, most of the time you hear traders making a loss. That is the bitterness of the stock market. First, you need to understand it’s an art of earning not gambling. Knowledge, strategy and bit of key are good ingredients to earn Rs 5000 in the day.
There are two ways by which you can buy shares in the stock market i.e. delivery and another one is Intraday.
“Higher the risk larger will be the reward”.
If you are a newbie in the stock markets, then you should go with a full stockbroker. A full stockbroker service make sure to advise you at every step and helps you to you make profit from the stock market.
You can invest your money according to your earning capacity. If you earn 50k per month you can invest your 5000 rupees in the stock market from where you can get a good rate of interest.
Avoid Emotion Based Investment Decisions: Most newbies in the stock market suffer losses since they follow their emotions to regulate their buy or sale decisions. For instance, the recent market crash or blood bath due to the lockdown lead to selling a good quality stock at lower prices due to fear of losing money.
One must perfectly make decisions against facts and figures and probably hold the quality stocks while selling the ones which are not fundamentally strong.
Patience: Patience is the most underused investing skill as it plays a vital role in the stock market because when you are impatient then the stock market is not the right place for you to invest. Patience is the key to earning and growing your wealth in a better way.
“The Stock market is a device to transfer money from impatient to the patient”
–Warren Buffet
Investing is a long term prospect that usually comes after many years. In the same way patience, too, is a behaviour where the benefits are rewarded in a long term only.
Diversification: Many new investors think that diversification is for experienced players, but it is not true. Every investor/ trader must consider diversification and pool their money into different sectors to save themselves from huge losses (if any) due to changes in macroeconomic conditions. If you are not diversifying the funds into different sectors will lead or can put your investment at risk.
For example, Ram has invested all his money into ABC ltd share which is a banking sector in the year 2018, due to macroeconomic reasons the prices of the said shares started to fall in the year 2019. It gives a hard hit to his investment.
Whereas Shyam has pooled his money into three different sectors which are Automobiles, Pharmaceutical, and Realty, in which two of them performed so well but pharmaceutical has underperformed. So this had balanced his portfolio or saved him from the risk of loss.
In 2020, with the outbreak of pandemic pharma sector boomed while other sectors went down. So still his portfolio is green due to the surge in the prices of pharma stocks.
This is how diversification helps and it’s not considered among stocks or sectors but can consider another investment instrument such as mutual funds of equities or debts.
Let’s recap the steps for Beginners to invest and enter into the stock market:
• Buy the right Investment
• Avoid individual stock if you’re a beginner
• Create a specialised portfolio
• Be prepared for a boom.
• Try a trainer before investing real money
• Stay dedicated to your long term portfolio.
• Start now.
• Ignore short term trading.
There are many ways to invest in the stock market:
1. Large-cap Companies: Market value of $10 million or more, generally mature, well-known companies within established industries.
Large-cap companies are those companies where we buy only two to three shares. Large-cap companies are the blue-chip companies that generally gives more return. Blue-chip companies are having strong fundamentals. Some examples of Large-cap companies are Reliance Industries, HDFC Bank, Bajaj Finance and Tata consultancy Services.
2. Mid-cap companies: Market value between $2 billion and $10 billion
Small-cap companies are the companies that have more risk but have more interest, these types of companies are the penny stocks. In this type of company, you can buy more quantity of stocks due to their lesser market value than large-cap stocks.
For Example Zee Entertainment, Relax footwear and Mahindra Life spaces.
3. Small-cap companies: A small-cap company is a company whose market capitalization is small. The market of Small-cap companies is under $ 1 billion. Small-Cap company investors are looking for fast-growing companies. Generally, these companies are smaller in size and have high growth potential. Over 95% of companies are considered are small-cap companies.
For Example AMC Entertainment Holdings, Avis Budget Group.
Other than stock market, and with a little amount of money, one can invest or consider mutual funds, though somehow it’s a part of stock market for creating wealth. There are various types of mutual funds where you can pool your money.
• Equity funds: Equity funds are those mutual funds that primarily invest in stocks. You can invest your lump sum money into that particular fund, and the said fund investment manager will invest on your behalf.
There are various types of Equity funds like as: Income funds (which hold stocks that pay large dividends) Flexi cap funds, large-cap stocks, mid-cap stocks or a combination of these.
• Balanced funds: Balanced funds are also termed Hybrid funds, are a type of funds that contain a bond and equity component in a single portfolio. Balanced mutual funds are prone to lesser risk than equity mutual funds, also gives a less return as compared to equity funds. These funds automatically re-balanced the investor’s portfolio when there are utmost corrections in the market.
• Debt funds: Debt funds are mutual funds that invest in fixed income securities like treasury bills and bonds. Generally, Debt funds are preferred by individuals who are not willing to invest in a highly volatile equity market. A Debt fund provides you with a low income relative to equity funds.
These types of funds are having lesser risk due to the pooling of funds into different sectors. This type of investment is generally profitable for the long term.
For Instance: If you have opted for any specific mutual fund, in which the investment manager pool your money into predefined different sectors stocks, and that said fund will give you return of investment (ROI) according to the fluctuations of the sectors stocks and the investment sharing into the sectors.
Why the stock market is better than other investment instruments like RDs, FDs or Post office Savings?
There are several sources where you can deposit or invest your money and get a good rate of interest at the end. For example– you can invest your money in the LICs, post offices or many other. But the stock market is distinct from them. Buy and sell of shares are quiet easy due to the hassle free electronic hold or transfer of shares, what we need is a little knowledge along with little money.
On the other hand, not always the stock market gives you the profits but it gives you the risk that you need to bear. Some of the people can be switched and quit from the stock market because they lost the capacity to bear the loss. In this market, you need to bear both things equally.
Fixed Deposits: FDs are taxable, which decreases the net amount you earn. The higher your income, the lower your fixed deposit return will be.
There is no increase in interests, FDs have the same interest for their complete lease. Hence the gains are stable and would not increase.
Recurring Deposits:
The best way to invest in small amounts is to look at Recurring deposits. These types of Recurring deposits are best for the small investors who do not understand the complex market techniques and the advice given by the promoters.
Post office Savings: The post office is good and also gives a good return in contrast to banks but are not good enough when compare to stock market. And also the services of Post office savings are not digitalised, and are operated traditionally.
Whereas the stock market is the first and foremost way to invest with lesser quantity and also get higher returns. You can open your trading account and also start investing with the help of any professional. There are many brokerage firms where you can start trading. After multiple investments and trading you get an experience or a good exposure from the stock market so you can also buy or sell the stocks according to your demand or by you own.
You need not worry much, everything is on the phone and it is safe and secure.
Whereas Systematic Investment Plans are popularly known as SIPs, and it’s a part of stock market because it deals in equities and debts. This facility allows the investors to invest a fixed amount of money at pre-determined intervals in the selected mutual fund scheme. This facility is for longer-term. Systematic Investment Plans are low initial investments.
You can take invest in diversified SIPs. It is for long term investment ones can think for. You can start the mutual funds with even Rs 100 for every month.
What is the trend in the stock market over the period of time?
Growth: It is the most important factor that affects the audience towards the stock market. Because every company wants to grow in today’s era. Suppose there is any person who tracks the stock market consistently so s/he invests their money only in the growing company because it gives some good returns.
On the other hand, we all know very well that Stock market is growing-fast nowadays. There is no age to enter in the market, what you have to be just have your trading account with any stockbroker and then start you’re trading.
In the trend of the stock market, you need to bear gain as well as loss equally. Some people are not targeted with their goal and have a lack of knowledge, no pre-defined plans, so one day they will lose the shares and make loss. If you know the whole kit then dealing with the stock market is much more stress-free for you.
How do you make money from the stock market?
Ask any financial advisor, and they suggested stocks are one of the good sources to building long term wealth. But the delicate thing with stock is they grow in value exponentially. Their movement is not much possible in a day-to-day with full accuracy.
Actually to make money in the stock market isn’t tough, as long as you observe some proven practices and also practice regularly.
- Creating money through stocks: The Buy and Hold Strategy
There is one common phrase for long term investors: “Time in the market beats timing the market”.
One common and simple way to make money in stock markets is to grip a buy-and-hold strategy, where you hold the stocks or other securities for a longer period.
Long term investors don’t invest their time and money in frequent buying and selling. Long term investing gives you strong annual returns.
You people need to stay connected with the stock market for a longer period then this type of strategy works for you.
- Opt for funds over specific stocks:
Experienced investors know that over time, diversification is the best practice to invest to create a good wealth over some time, as it’s an old saying don’t put all your eggs in one basket. Newbies also invest in different stocks or funds to hedge their risks. There are various investment types to invest Mutual funds are the best practice to pool their money, or ETFs (exchange-traded funds).
- Re-invest your Dividends: Most of the companies pay dividends to the shareholders it can either be an annual or quarterly payment based on their investment.
While these amounts are small you get paid in terms of dividends and it may seem negligible. Especially when you are new to investing. As per the S&P 500 the investors generally saw an average annual return of 6.7% but when dividends were re-invested however that percentage surged to 11%.
That’s because each dividend you re-invest buys you a more number of shares which shows the earning rate compounding even faster.
It is rightly said that “Compound interest is the eighth wonder of the world. This quote explains that who understands it, earns it, he who doesn’t, pays it”.
- Select the right Investment account:
As the specific investments you pick are important for long-term investing, the account you choose to hold the shares is crucial. That’s because some investment accounts give you the profit of several tax advantages.
Most brokerages (but not all) offer every type of investment account, so make sure your company of choice has the account type you required.
- The bottom line:
If you want to make money in the short or long term in the stock market, you don’t have to waste your time speculating on which individual companies you should buy to attract money and make a profit in short term. Even the most successful investors like warren buffet suggest people that invest in a low or undervalued stock or can say whose PE ratio is less than the average industry and hold them for years or decades until you need the money.
Your Take:
Investment is not a rocket science, you need to start and create your wealth at the earliest. If you have Rs. 1000 with you, keep a track on the shares which are up to or below your budget. You can either buy a few stocks of larger amounts or can buy a good amount of stocks in smaller amounts. Slowly, but surely, as your savings starts to grow and your understanding of the market increases.