It is quite difficult to find out the solution when an individual can start investing in the stock market i.e. what is the right time to invest in a mutual fund or direct equity. We will try to tell here about some conditions or aspects of the stock market. Whenever share market touches high or witnesses a sharp correction from its high peak, novice investors get in a dilemma whether to start investment. When the market inches toward a higher level or makes a lifetime high every week, new investors fear that the market may collapse or go into sharp correction leading to a loss for the investors.
Again, when the stock market witnesses sharp correction or enter in the bear market, investors do not consider it is the right time for investment. They think that the market may continue its correction, so it is not the time for investment. They think that the share prices may further downside more. So, these are the conditions that take place continuously in the stock market and people remain confused when to start investing.
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The best time to invest in the stock market
Practically, it is needless to say that the bear market and the bull market are the two inseparable parts of the stock market. An investor who wants to invest in the stock market for a long-term horizon should not get bothered by these two inevitable situations. If you are confused about the best time to invest in the stock market, we offer you this,
Yesterday was the best day to start investment in the stock market. If you missed it then the next best day is today. The worst day to start an investment is tomorrow.
Many novice investors have an idea that the stock market is basically buying a stock at a lower price then selling the share when it is higher than the cost price. But many beginners are confused about the best time to invest in the stock market either via a mutual fund or buy any stock. What if the share price shows a major correction and comes below the buying price. What shall I do then? In this connection, I offer you this,
The intelligent investor should recognize that market panics can create great prices for good companies and good prices for great companies. —
Whether investing in the stock market via Mutual Fund or Direct Equity
The best approach is that you can start an investment with a little amount, preferably via a mutual fund if you do not have adequate knowledge to start an investment in direct equity. Then gradually you may increase your investment as your income increases. Let’s make it clear with an example,
From the above discussion, we can say that it is not a matter at which price an investor bought Titan Company. It does not matter anymore if one investor buys Titan Company at Rs. 250 or even 300. If any investor bought Titan Company at the price of Rs. 300/- then the stock has delivered a return of 200% return in just 6 years. You should stick to a company for a long time to get the desired return after making a proper analysis of the stock before investing in it.
“In the short run, the market is a voting machine but in the long run, it is a weighing machine”. —
One of the major benefits, when you invest over a long-term horizon, is compounding interest. Let’s make it clear with the following example. Just look at the following graph.
If you make a lump sum investment of Rs. 1 lakh at once and allow the money to compound at the rate of 15%, then you will get-
- 4 lakh after 10 years,
- 16 lakh after 20 years,
- 66 lakh after 30 years.
How to Pick Best Stocks for a consistent return
In order to get the desired result as discussed above, you should check out the following factors before investing in any company,
- Market capitalization
- Debt ratio
- Compounded sales growth
- Compounded profit growth
- Return on equity
- Good dividend yield
- Price to earnings ratio
- Balance sheet
- Profit and loss account
- Free cash flow statement
It is advised for the new investors to invest in the stock market via mutual funds. If you are worried that the price of stocks may go downward, you can carry out your investment via a systematic investment plan (SIP). The systematic investment plan enables an investor to invest regularly in the stock market irrespective of the market condition i.e. bull market or bear market. Like a mutual fund house, you can opt for an equity sip where you can invest regularly in the stock market regularly as your desired company. Many Demat account providers i.e. SBICAP Securities, ICICI Securities, HDFC Securities, etc. offer equity SIP where you can invest in stocks every month. Your broker debits money from your account and with that money buys shares of your desired company and allots those shares in your Demat account.
Suppose, you choose 4 stocks namely HDFC Bank, Titan Company, Minda Industries, and Asian Paints. You may put equity SIP to buy one share every month for each company. Your broker will buy shares in accordance with you and allot them to your Demat account every month.
You should start investing right now after making a proper analysis of various stocks. You may also choose mutual funds if you have no knowledge about the stock market or have not got enough time to make a proper analysis. In the case of mutual fund investment, just check the performance of the mutual fund for the past 5 years. If you invest in direct equity, after making a proper analysis, you can diversify your portfolio to mitigate the risk of loss. Always try to find good stocks that fit your analysis, irrespective of bear or bull market. All you need to do is to stay invested over a long-term horizon irrespective of short-term volatility. If you waiting for the best time to buy stocks, you may miss the bus.
How Capitalante can help you
Are you confused about how to prepare an effective financial plan to achieve financial freedom? If yes, learn how to prepare effective financial planning.
- Read also: What to do in a volatile stock market
- Read also: Top 10 best stocks to buy in India for long term
If you have found any question regarding is it the right time to invest in the Indian stock market feel free to comment so that we can have a discussion. If you found this post helpful please share it with your loved ones.