Investment is a pathway to fulfill your financial goals, accrue retirement fund, and live a life full of satisfaction. There are several investment assets like stocks, equities, real estate, gold, mutual funds, commodities, etc. Investment as a medium to generate money is proliferating ten folds among mass investors.
While there are numerous advantages of investing, including tax-saving and risk-free investments, there also exist some myths which become a hindrance for potential investors. Here are some misconceptions about investing money:
Investment Needs Huge Amount of Money
Having a substantial amount of money always provides exposure to more investment opportunities, but investing a moderate sum can also result in high returns over time. For example, it’s easy to look at र 5000 investment in saving and think that buying stocks is not worth the effort. After all, an 8% return on र 5000 is only र 400, which won’t be enough for retirement. It is rightfully said that investors don’t become wealthy overnight by financing र 5000 in a diversified portfolio of stocks. Though the potential of the share market lies in compounding returns. So, if you invest र 5000 per year in the stock market and make 8% annual return, your portfolio would be worth more than र 500,000 within 30 years. If you want to build a big corpus in the future but do not have adequate funds to invest now, you can even start investing as small as INR 1000 every month through SIP (systematic investment plan) route.
Stock Value Increases with Time
The purpose of investing in the share market is to buy stocks of a business at a reasonable price, such that in the future it proves to be lucrative for you. If the company has a decent business, it won’t matter if it is large, small, and/or has tremendous goodwill. Therefore, buying the stocks of companies only because their market value and price has dropped will get you nowhere, you should do thorough research before making a purchase decision. For example, X is a big company whose share price was at its all-time high at INR 1500 six months ago but has since dropped to INR 550. B is a smaller company whose share price has risen from र 200 to र 600. Mostly, every naive investor will buy the shares of A company thinking that the share price of A will rise eventually as it is a big company. However, investing in company B would have actually benefited the investor.
Stock Market is another Gambling
A lot of people think that investing in the stock market is another way of gambling. It is far more dependent on how lucky you are. This is a very wrong and insane impression. Investing in the stock market is in itself a great skill. When you buy shares of a company, you have a right to the assets, liabilities, and a small section of the profits of the company. Therefore, the difference between buying stocks of companies and gambling is that you are speculating on the future of the company and a past record that you can track. The key to investing in the stock market is doing research and adopting a safe technique such as value investing. You can buy stocks of a company at a lower value and keep them till you get a profitable return on investment.
Demat Account is Mandatory for Investment
When it comes to the mutual fund industry, an individual only needs a PAN card, a bank account, and a one-time process of filling up a Know Your Customer or KYC Form. The basic requirement is you must know how to open Demat account, which is needed to trade in the stock market. It stores your shares in digital form. However, if you want to invest in mutual funds, it is not mandatory to have a demat account. You can start your investment through SIP’s.
Reputed Companies will Give Higher Returns
While investing based on your knowledge of a company may have particular benefits, there are also some disadvantages associated with it. Depending on the industry, the stocks of famous companies may still be volatile and vulnerable to unexpected changes in the market. You should be open to studying the brands that may not be big players but have a well-built and strong business model.
The investment seems to be simple but at times demotivates people due to some misconceptions about it. To summarize the points mentioned above, investing in the share market presents you with the ability to invest in different asset classes with minimum to moderate to high risk depending on your risk-taking ability.