Stock trading is getting more popular among retail investors these days. The data from exchanges and market regulating authorities shows that individuals are indulging in stock investing and trading. The data from Nation Stock Exchange or NSE shows that the retail investors’ participation has increased on the graph from 39% since 2020 to 45% in 2021. And the SBI report analysis shows that the number of retail participation in the stock market has touched 44.7 lakh from April to June this year.
Most of the new investors open a demat account and venture into stock markets with the expectation of getting quick returns after considering the main driving factors of the stock markets.
Following are a few reasons for such surge:
- Decreased interest rates on saving investments
- The recovery rate in the economy
- Significant increased global liquidity with the FII inflows in FY21; valued at $36.18 billion
- Easy accessibility to stock market through easy demat account opening procedure
- Increased market capitalization in the Indian stock market. The increase in the BSE Sensex market cap has been recorded 1.8 times
Among new market participants, most are the age group of 18 – 35 years. Many borrow funds and invest small amounts in stocks but gradually increase their portfolio reach by making small profits and reinvesting them.
No individual can afford to take the stock market for granted. It is crucial to pick stocks very carefully. What an investor commits mistakes include just picking any stock as per recommendations without adequate research. Such picks do not enable them to understand when to take profit home. Unfortunately, they may have to bear huge losses.
Investing Steps – Align Financial Investments and Objectives
Here are the steps that may help new investors to align their investments and financial goals.
1. Determine the investment horizon
Most investors know the stock market for quick and short-term returns, but it is not the only case. The stock market is about long-term investing also. You can make long-term investments to meet your long-term financial goals. Long-term investing helps to minimize the risk involved in the stock market. Diversification is one of the most preferred techniques to mitigate the risk and get compounded returns.
2. Follow your financial plan
The stock market is far away from emotions. Stock investing is based on trends and buy/sell indicators. The impulse may result in making emotion-driven investment decisions that may result in investing in wrong stocks, thus huge losses. Such impulsive decisions result in disrupted long-term financial objectives. You can save yourself from such situations by following your financial plan. Based on your financial plans, you can make proper allocation towards your short-term goals and long-term goals.
3. Choose the information sources for investing carefully
When you open a demat account and trading account with a broker, they provide you with an in-depth analysis of companies’ market performance that helps you make informed investment decisions. These analysis reports are prepared by experts across businesses with years of experience in sectors and market cycles. Make sure you choose your broker after thorough research. Easy demat account opening procedure is not the only criteria to choose a broker. Make sure you utilise reliable information to make your investment decisions.
4. Research about the company thoroughly.
If you choose the positional trading style, you need to save your capital from potential losses in the stock market. Thus, before investing your funds, analyse your risk profile and go through the company’s available financials to know its likely growth rate, like annual reports, shareholder meetings minutes, IPO prospectus, etc. You need to devote your time to research to make informed investment decisions.
A new investor with inadequate knowledge of the stock market can consider mutual funds also to take advantage of professionally managed and well-diversified investment portfolios. Still, you need to go through the fund scheme and check the current as well as the past performance of the fund house. For an online mode of investment in funds, you can take advantage of free and faster demat account opening procedure with renowned discount brokers.
To remain successful in the stock market, you need to be well-prepared which is possible to a great extent by regular monitoring of dynamic shifts in markets.