Stock market trading strategies have evolved over the past few decades. From value investing to technical analysis, you can follow many philosophies and methodologies. But, in order to maximize returns and minimize losses from the stock market, you need to follow some basics. This article will brief you on some best practices to maximize your returns from stock market investments.
Stock markets offer high liquidity, higher returns within a short span of time, intra-day trading, and many other benefits. However, stock market investments entail some risks in the form of market risks, business risks, liquidity risks, interest-rate risks, inflation risks, etc. So you need to know some investment basics to minimize your losses.
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Ways to Invest in Stocks
There is no ‘perfect’ way to invest in stocks because no investment method is without drawbacks. Moreover, the expected returns and risk appetites differ from person to person. But, there are some general rules which will enable you to maximize returns and minimize losses irrespective of your risk appetite. Let us examine these tips below:-
- First and foremost, you need to open a Demat account to trade in stock markets. There are many banks or financial institutions like which offer Demat services. If you do not know how to create a Demat account, use the internet search engines to access the websites that have explained the process in detail. Bajaj Financial Securities Limited (BFSL) Demat account is one of the best options available in the market as it charges a flat brokerage rate per trade, thereby helping you save big on brokerage costs.
- It is better to go for options like the Bajaj Financial Securities Limited Demat account because they allow you to open a Demat account online at zero brokerage cost. In addition, the affordable subscription packs offered by BFSL save up to 99% of brokerage fees on delivery trades. Backed by the trust of Bajaj Finserv, opening a Demat account with BFSL lowers your business risk significantly.
- Decide how you want to invest. In other words, assess if you are knowledgeable enough to do proper fundamental and technical analysis of a stock before investing in it. Otherwise, seek the help of a financial advisor.
- Set aside a budget for stock investment. Most demat service providers would want you to maintain a minimum balance of INR 50,000 in your Demat account before you start investing in stocks. If you have a longer time horizon at your disposal, you can allocate a larger proportion of your investment portfolio to stocks. Keep lowering the proportion of stocks in your portfolio as you keep aging.
- Remain invested for the longest possible time. The longer the investment period, the greater will be the returns from stocks.
- When interest rates are low you must invest in equities and vice-versa.
- If you are a beginner, start investing in ‘A’ grade or blue-chip stocks to minimize market risks. Low-cost mutual funds and Exchange-Traded Funds are also good options for amateurs. Specify stop-loss price.
- Hedge your stock investment risks by investing in derivatives or bonds. The popular derivative instruments are futures and options. Futures are financial contracts that will enable you to buy or sell a security at a predetermined price on a predetermined date. Options allow you to buy or sell the underlying asset at a predetermined price on or before a certain date. If interest rates are not very volatile, bonds are a good alternative for stocks.
- Factor in inflation component while calculating expected returns from stock investments. Value stocks perform well during inflationary phases as compared to growth stocks. Value stocks are stocks that trade at a discount or below their par value. Growth stocks are stocks that grow faster than the average stocks.
These are some basics to follow while investing in stocks.
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