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

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

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...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...

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...
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