Alternate Investment Avenues To Stocks: Mutual Fund SIPs & ETFs

If taming the stock market was so easy everyone would do it. Losing money in the market is real, and facing all the volatility of the stock market is part of the deal.

Every time you are chatting about stock markets during a dinner meet, a night out or while visiting a friend, invariably there will be someone offering a tip on a stock and another one willing to invest and make big money. In reality, this story usually doesn’t end well. Many have lost money on stock tips. If you want to enter the equity market, here is what you should know before investing:

Take the mutual fund route

If you don’t know anything about the stock market or have been tempted to venture into it through stock tips, don’t. If you really want to invest a part of your portfolio in equities, start with mutual funds. 

ETFs can be an option to consider

First-time investors may not be able to do the due diligence too. “Figuring out the entire market or even crunching numbers is not possible for a new investor. You could start with committing a small amount in Exchange Traded Funds (ETFs). You need a demat account for investing in an ETF. ETFs are made up of stocks, making a particular index such as Sensex or Nifty.

Invest in companies you understand and use

Once you get the hang of ETF investing, even before you start crunching numbers for individual stocks and read technical charts, use your common sense. Firstly, understand the companies that you want to invest in. Choose to understand that particular sector well. As someone who is just entering the market, it makes sense for you to buy a stock you know a thing or two about rather than investing is some random company which you have never heard of before.

SIP it up

Just like you have Systematic Investment Plan (SIP) in mutual funds, many brokers now give you the option of investing in direct equity through SIP. “Say you have ₹5,000 a month to invest in equity. Choose three stocks, and set a date with the broker to buy one share each of those three companies a particular date a month. 

Reality check

If taming the stock market was so easy, everyone would do it. Losing money in the market is real, and facing all the volatility of the stock market is part of the deal. While dealing with direct equity investing, besides looking at the fundamentals of the stock, the number crunching and price-to-earnings ratio, you also need to consider how you emotionally handle your investments. It’s a tough game, as you will be competing with experts.