Various Investment modes in Stock Market
Stock market always attract people for an investment opportunity. There are so many modes of investment in stock market. Few of them are listed below-
- Directly purchasing the stocks
- Investments through Mutual funds
- Purchasing Bonds
These are best methods of investment in stock market and they are used as mode of investment worldwide. Now let us discuss them one by one that how to beneficial, riskier and how much returns you can generate from these modes of investments. In this article, we will discuss at length only about investment in stock market by directly purchasing the stocks.
Directly purchasing stocks:-
- Image source: Google finance
This mode of investment is riskers among the referred modes. You must have some knowledge of reading the company balance sheets, so that you can check the company financials over the period of time, company debt, and dividend paying history, corporate governance and management of the company. Before purchasing share of company you should analyse thoroughly about these aspects as any bad investment may even wipe out your all seed money as well.
For purchasing stocks you must open a DEMAT account with brokers, there are so many broker firms available in the market such as ICICI Direct, India Infoline limited, Angel broking, Zerodha and many more firms which are registered with SEBI. You can negotiate for brokerage, annual charges and account opening charges before opening the account any of them. Always try to choose only reliable brokers only.
When you open an account with any broker they will try to open your accounts such as Forex trading account and Commodity trading account, try to avoid it as broker’s deployed relationship managers will try in future to trade in these riskier elements as well.
After opening the account, you can purchase any stock after thorough analysis. There are even multiple options in DEMAT account for sale and purchase in stock market such as-
- Intraday Trading where leverage is provided to you against the amount you put in to the account or against the stocks available in your account. This is riskier option as leverage up to 10 times is provided to you, so that you can trade in stock market for whole and ultimately will lose your hard earned money and broker will get advantage of more brokerage against more trading. More leverage they give more you will trade and more you will lose.
Future and options trading:
There are few stocks in market, which have future price of the stock i.e. if you are sitting in October, and stock cash price is Rs.1000/- per share and you can purchase future lot of stock i.e. of January month with price of Rs.1050/- per share. This means you are paying Rs.50 per share as premium predicting that in January it will be Rs.1050/- per share and they are available in lots. Now if price increases to Rs.1050 per share in October itself then future price of January month will also increase by at least by Rs.50 per share.
You can purchase lot of the stocks, which may have value around Rs.300000 for lot of 300 stocks with future price of Rs.1000/- per share by paying Rs.50000/- This means you get more stocks for lesser value. However, if Stock decreases, you have to add fund value against market-to-market losses each day and if stock price increases then you can withdraw the profit against the same each day.
In this mode you can even sell the stock if you know that future price of this stock will be down due to bad financial results, changing corporate environment, frauds, poor corporate governance etc.
Similarly in options as well. This tool looked very attractive but are quite riskier as you even lose more than 100% investment. These future and options can destroy your future.
This is called investment mode where you can buy the stock against the amount available with you and you can keep the stock as longer in to portfolio as you desire. This mode attracts highest brokerage as investors do not buy or sell their stocks frequently. More risky are the options lesser will be the brokerage.
Now days this mode also made riskier by brokerage firms in which brokerage firms provide tips for BTST (Buy today sell tomorrow) i.e. you can buy the stock at leverage today and sell the stock by tomorrow. This mode also attract people to gain some quick bucks. Try to avoid this as well. Always try to be investor for period of at least 5-10-20 years or even more.
If you buy and hold the stocks for longer period, you will even get dividends at regular intervals if company is making handsome profits. Always try to devote time in studying the fundamentals of company before investments and when you buy a stock then have a faith in your research even when lot of experts are giving counter view and few hiccups occurred for short period of time. Even at times, your investments may fall below 50% or even more but you have to keep faith in your research and hold the stock by keeping in mind that you owned a business.
Completely avoid the short-term trading ideas where you may lose all your hard-earned money. Be a wealth creator not destroyer.