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Stock Investment: How Much Money Do You Need to Start Trading Stocks?

If you are thinking about investing in the stock market, one of the most difficult decisions you will have to make is how much to invest. Stocks, as you may be aware, are regarded as a risky, more return investment option. Therefore, if you do not plan your strategy carefully and blindly invest in any stock, you risk losing your entire capital in an instant.
 

How Much to Invest in the Stock Market?
 

The answer is entirely dependent on your financial situation and future goals. In reality, you can begin your investment journey with as few as ₹10, and if you have a sizable bank balance, your initial investment could be in the Lakh. 
 

How Do Beginners Invest?
 

Investing in stocks for beginners necessitates special consideration. If you are new to the market and are not familiar with market fluctuations, here are some important factors to consider before deciding on an investment amount.
 

  • Determine the surplus

    The very first thing to consider before deciding on an investment amount is the excess funds you have at your disposal.

    For example, suppose your savings bank account currently has a balance of ₹2 Lakh. Your current liabilities include ₹50,000 in outstanding debt and ₹40,000 in college fees for your child. In this case, your surplus is around ₹80,000 (₹30,000 kept as emergency reserve).

    Here, it is recommended that instead of investing the entire surplus funds, you should consider investing ₹10,000 at first to understand how your stock is performing on the market. 

  • Risk appetite

    The stock market is highly volatile. It fluctuates throughout the trading day in response to global events, political news, policy changes, and so on. It is difficult to predict the next market fluctuation. As a result, before investing, carefully consider your risk tolerance. If you have too many loans or ailing dependent parents, unmarried siblings, and small children, you may prefer to invest in the ULIP policy rather than stock directly.

    The ULIP returns include both stock earnings and life insurance benefits.

  • Time horizon

    Time is critical for selecting the right stock and determining the optimum investment amount. Your time horizon can be short or long-term, depending on your needs. It will assist you in understanding how much money you want to invest and how much you want to keep in liquid funds.

    • Short term: 

      A short-term investment is made for less than a year to cover near-term goals, such as a new vehicle purchase. Since this kind of investment is made to generate higher income in the short run, you can invest in blue-chip stocks for safer returns.

    • Long-term: 

      Such stock investments are typically held for at least ten years. The primary goal of long-term investment is to build a nest egg for retirement. Since the time frame is longer here, consider a systematic investment plan (SIP) to capitalise on market fluctuations instead of blocking your major funds. 

  • Investment strategy


    Another critical consideration is an investment strategy. It will assist you in determining which investment styles will best suit your needs. You can pick from any of the three investment strategies listed below.

    • Value investing:

      You can use this investment strategy to buy stocks that are undervalued as opposed to their competitors. The strategy focuses on stocks with solid fundamentals that have the potential to generate more long-term returns. In contrast to overpriced stocks, under-priced stocks offer more units for a lesser price.

    • Growth investing:

      This investment strategy seeks capital appreciation. This strategy involves investing in stocks that have outperformed the market. When you examine the fundamentals of such stocks, you will notice that their price-to-book and price-to-earnings ratios are on the high side.

    • Income investing:

      This investment strategy focuses on stocks that provide dividend income. When you choose an income investing style, instead of investing a large sum in a single stock in one go, you can reinvest the dividend income and increase your earning potential every year.

  • Consider stock fundamentals

    The most important stock market investment advice for beginners is to evaluate the fundamentals of the company. Before you buy any stock, run it through various ratios, such as the price to earnings ratio, the price-to-book ratio, and the debt-to-revenue ratio.

    The Price to earnings ratio ratio tells you how much you must invest in a particular stock to earn one rupee. The debt-to-revenue ratio will provide insight into the company's liabilities; you can use it to determine how much of the company's revenue is dedicated to debt repayment.

    Apart from that, consider net assets, cash flow position, five-year average net profit, and so on.

  • Shareholder pattern

    The investing for beginners’ advice suggests analysing shareholder patterns. It will assist you in avoiding potential loss due to the unfair practice known as 'Pump and Dump.' When selecting a stock, consider how many shares retail investors, promoters, mutual funds, domestic institutions, and foreign institutional investors held.

    Avoid investing in stocks where the promoters own almost nothing and the majority of shares are held by retail investors. The reason- promoters are the foundation of any company, and when they sell their holdings, it is usually because the company is having difficulty generating revenue.

  • Size of the company

    When determining the investment amount, the company's size and market capitalisation must be given a premium. Stocks are classified as large-cap, mid-cap, or small-cap based on the number of floating shares on the market. Large caps are typically regarded as the safest and are less vulnerable to volatility.

  • Other options

    As previously stated, stock market investments are subject to volatility. If the market is bearish, there is a chance you will lose your money. In order to avoid this situation and save money, you should diversify your financial portfolio. Make sure you have a life insurance policy in your portfolio.
     
Conclusion
 

Before selecting a stock or deciding on the best investment amount, consider your current responsibilities and your long-term goals. It will help you understand how much money you have for investment and how much you should invest so that the returns are sufficient to cover your goals.
 

L&C/Advt/2023/Jan/0004

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

What are the key prerequisites for investing in the stock market?

To invest in the stock market, you need to first open a DEMAT account with a registered depository participant. 

What are the various methods of investing in the stock market?

You can invest in any company's stock directly or through mutual funds and ULIP plans.

Disclaimer

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.
  • Past performance is not indicative of future performance.
  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.
  • Please make your own independent decision after consulting your financial or other professional advisor.