Skip to main content

Basic rules for investing in stocks

Last few years have been very easy for the investors to make money out of markets. Thanks to solid bull run. But situation has changes both globally and locally as well. This all started with US sub prime issue. This market correction has bought many of the investors back to basics and class room to review their stock selection strategy



Set a ceiling for exposure to a particular stock



You must set a maximum limit for exposure to a stock as over exposure can prove disastrous in a struggling market. In your portfolio, the value of RIL shares is around Rs 1.58 lakh, that's an upside of 108.7 per cent from your cost price. The rapid appreciation of the stock's price has resulted in it cornering 32 per cent of your portfolio. Consequently, one-third of your portfolio is dependent on just one stock. It would be great if you could moderate your risk by reducing your exposure to RIL.



Avoid small holdings



The price movement of the stock should never be the sole reason for buying it. You must have a sound reason for investing in a particular company. And once you do, try to have a meaningful exposure to each without going overboard. Your portfolio consists of 22 stocks, with just three losers. But 12 of your 22 stocks have an allocation of less than 3 per cent. You've missed out on enormous gains from stocks like IFCI just because of your small and negligible holding (under 1 per cent). Such stock holdings add little value to the portfolio and instead makes monitoring a more tedious job.



Book profits occasionally



If you plan to book profits occasionally, you must set a target price for your stock. This is another reason why you must have a meaningful position. If you do, you need not sell the entire holding. By adopting the strategy of booking partial profits, you can sell 20-30 per cent of your holdings on every price rise. Should the market tank and the price of the stock fall, you can re-enter at a lower level. Should the market rally, you can benefit from the upside by offloading portions of your investments at a later date. Whichever way the market moves, you win.



Limit the exposure to a particular sector



Just like a diversified portfolio is needed in stocks, the same holds for sectors. It must not be skewed towards one. In your case, 35 per cent of your portfolio comprises of energy stocks. Such high allocation to a single sector can make your portfolio look weak when the energy sector turns bearish. Hence, it is advisable to reduce exposure to energy stocks and move to some other sectors to make your portfolio more diversified. The practice of being exposed to various sectors makes the portfolio more resistant if a particular one underperforms.



Review periodically



When investing directly in equities, you must monitor your investments regularly. In a mutual fund, your fund manager does that for you. Keep a tab on policy changes and tax issues affecting the sector. If the sector outlook gets bearish, it would adversely affect your investments. But, if you are convinced about a company's future prospects, you should remain invested in it irrespective of its short-term price fluctuations. You can use the Value Research Online Portfolio service. It will help you keep a track on your investments as well as analyze your sectoral compositions.



Following the above rules will ensure that you have a well balanced and diversified portfolio.



But if you want to speculate, then it is another ball game. Our advice: Tread cautiously. Limit, say, 10 per cent, of your investments to speculate on stocks. Don't try it with all your holdings

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

Mirae Asset Emerging Bluechip Fund

Start Saving for Tax 2018 by Investing in ELSS Funds Online HOW HAS THE Mirae Asset Emerging Bluechip Fund PERFORMED?   With a 7-year return of 25.08%, the fund has outperformed both the category average return (18.04%) and benchmark (13.4%) by a wide margin.   Growth of Rs 10,000 vis-a-vis category and benchmark   Mirae Asset Emerging Bluechip Fund   is a mid-cap oriented fund continues its stellar run, clocking another year of outperformance over benchmark and peers—a feat it has achieved every year since inception. The fund manager plies a strictly bottom-up approach to stock selection and keeps risk contained by focusing on larger mid-caps. A year ago, it had stopped accepting lump sum investments and now the fund has also put restrictions on SIP investments—only allowing SIP on the tenth of every month with an upper limit of Rs 25,000.   It has done so to preserve its return profile in the face of mounting inflows and stretched valuations in the mid-cap space. This step should hel...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now