The year that just started calls for a change in your investment strategy, because the year that has gone by has altered the way the common man of India looked at savings for tomorrow.
Shares for everyone
Traditional instruments of investment — bank deposit, gold and real estate — are fast becoming a passé for Indians as stocks and products like equity mutual funds take the center stage.
The past year saw the middle class, salaried employees and even daily wage workers, who have so far stayed on the sidelines, increasingly taking the plunge into stock investments, chiefly through equity funds. Investments in stocks and through other financial instruments grew 14.6% in 2017, grossly outpacing physical assets where the expansion was a tepid 5.9%.
The reasons for this shift were many.
Banks have reduced interest rates on deposits. While that made fixed deposits less attractive, physical assets like gold and real estate too lost luster as investment options.
But one of the biggest reasons was the fear of tax authorities. After demonetization and increasing digitization, authorities are equipped to monitor large deals in gold and real estate, and making investments through transparent transactions is the best way to avoid scrutiny.
Stocks became an obvious choice for such investors and the market didn’t disappoint them as indices galloped to new peaks in 2017.
Most of those who had invested in stocks directly or through mutual funds made attractive returns. Encouraged by that, they are planning to make bigger bets in equity this year.
This is an opportunity that you could use as well, but plan your investment and implement it wisely to avoid burning your fingers. Remember, in the past year, despite the Sensex gaining 28% to scale the 34,000-mark, many investors made losses.
A master plan for investment
The stock indices, which are breaking their own records on a daily basis now, are likely to climb further in 2018, say market experts.
Several factors back this bullish projection.
Global markets are trading on a positive note, but India still outperforms them. So, overseas money will continue to flow in.
Within the country, falling interest rates and increasing acceptance of financial instruments like mutual funds will channel more and more funds to equities from traditional assets.
BJP's strong electoral performance will keep market sentiment strong.
Of course, there are risks too.
Developments in any part of the world get reflected on equity markets. Natural calamities, developments in the Korean Peninsula and Palestine, and China's actions could affect market trends. Rising oil prices is another threat.
Many companies still have not emerged from the sluggishness that GST and demonetization brought to their businesses. How this is going to reflect in their financial performance in the coming quarters will have an influence on their stock performance.
Despite all these, the expectation is that the markets will give attractive returns in 2018.
Here are a few tips that you could use while planning investment.
Blue chips for safety
Blue chips or large capitalization stocks are the best bet for those who want to play safe, because their price doesn’t become volatile like small or midcap shares.
They may not give huge returns in one or two years — of course, there are exceptions, like Maruti Suzuki that returned 83% in 2017.
The biggest advantage of investing in these stocks, which are part of the benchmark Sensex and Nifty indices, is that the risk of losses is limited. Even in the event of a crash, the fundamental strength of these stocks will ensure their climb back, even if it takes some time.
Pick the most attractive blue chips for your investment.
Small and midcap for big gains
Shares of Indiabulls Ventures rose about 11-fold in 2017. Though that kind of returns is impossible to predict, if you are looking for steep gains in one or two years, it the small and midcap stocks that you should choose.
These stocks tend to be volatile, and the risk of the selection going wrong and the investor making losses is extremely high.
Still, those who can take the risk may consider these stocks since the reward for investing them tend to be attractive too.
Young people, who have the time ahead of them to recoup any losses, may consider the small and midcap segments for investment. But those who are in the 50-60 and above age groups may well avoid such risky bets.
SIP in stocks
SIP or systemic investment plan is a term that has more often been heard along with mutual funds. But leading brokerage houses offer equity or stock SIPs as well, where a certain amount can be invested at regular intervals in stocks.
You need to know how much money you can set aside every month for investing in stocks. Based on that, the broker will decide on a portfolio and buy stocks.
Such portfolios are categorized into low risk, moderate risk and high risk based on the stocks they invest in, and you may make your selection based on the risk appetite.
The biggest advantage of this method of investment is that you can build a sizable portfolio brick by brick, even when you don’t have a lump sum amount to put in. Over a period of five to 10 years, the investment will become large enough to pay for your needs.
No amount is small
If you have made the right pick, even one share could earn you lakhs of rupees over a period of time.
Infosys, Wipro and even Kerala's own Kitex and V-Guard have demonstrated that wealth-creation capacity, with share splits and bonuses, etc.
There are several similarly potential stocks in the market, but you need to spot them.
Even if you have only Rs 500 a month to invest, that can be put in stocks.
Identify two or three good stocks that is available for that money, and buy every month. Over a few years, you could build a significant portfolio and make surprisingly good returns.
For such small investors, Sebi has ensured low-cost demat accounts. Utilize those.
Initial public offerings have given generous returns 2017, so the market is keenly waiting for new issues this year.
If the economy stays on the growth path, you can expect more quality IPOs to hit the market.
For investment, select the issues of good companies that are available at reasonable prices.
Portfolio management service
If there is at least Rs 25 lakh to invest, you could avail of professional service to manage the money.
Portfolio management service is a value-added service provided by brokerage houses for a fee.
The house’s research team will help select the best stocks for you. The investment will be monitored closely, and portfolios will be tweaked whenever required to ensure maximum returns.
Mavens may trade
Solid knowledge of the market, time and facilities to monitor latest news and a knack to analyze the developments, and the maturity to make right decisions are some of the key attributes needed to make money through stock trading.
A bull market is predicted for 2018, but volatility is the norm in the share market. A good trader will get many opportunities to make money this year.
Share trading is not for you if you don't have the above qualities. Instead, focus on investment, which will also provide plenty of opportunities.