When you invest money in any investing instruments with the hope to generate income in the future, it is called as investments. These investments generate income when it appreciates in value.
For eg., You buy 10 shares of ICICI Bank for Rs. 10 during 2013. By the end of 2015, if the face value of shares has become 15, you have made a profit of Rs.5 per share. Investment can also be understood as buying some assets in the anticipation that the asset value will appreciate in the near future.
There are different kinds of investments, namely, mutual funds, share market, bonds, gold, real estate, etc. A few questions which may repeatedly come to your mind are, how to invest in Mutual Funds, or how will these investments benefit me in the future? You should know that whenever you decide to make an investment, there will be lots of people around you who will spread misconceptions or mythical information about investments. But, what are the myths about investments that mislead investors?
Invest money in equities only for a short period
There is a general belief that if you want to capitalize on your equity investment, park your money for a short period of time. Otherwise, you will lose all your money. This fact is partly correct because when you put your money in equity investments, you can double, even, triple your investments. What about the other half of this statement? It is very important to know the fact that you will get better returns if you keep your money for a long time in equities, preferably 10 years.
Must Read: – Ways to Measure your Mutual Fund risk?
If Invest your money in equity, be ready to lose
This is another myth about this kind of investment floating around. If this is a myth, what is the truth? To invest in the equity market, you have to know the ropes to mitigate risk and earn a fortune. There are certain tips and tricks you should apply to play the game in the market. It requires an ability and some knowledge to turn the table in your favor. A common man or a novice will not know this and he goes around spreading that the equity market is highly risky.
Invest in real estate to keep your money safe
It is yet another myth that is prevalent among the Indian investors. Buy a house for 10 or 15 Lakhs, your investment would be two or three times its present value after a few years. This assumption is wrong. It is always good to have a shelter of your own. But, if you start linking that belief with investing in the stock market, it is wrong. The main reason is after a few years the house will not appreciate beyond a certain limit. Just consider the prices of flats in Mumbai or Delhi. You will easily realize that it has remained static or even come down at a certain point in time during the last few years.
On the flip side, if you invest in equity for at least a period of 10 years, you will earn a profit you never believe is possible. If you feel that the market is going to fall and you want to withdraw your money. You can sell your shares and be happy with the profit you got during the holding period of those shares. But, when the real estate market fails, there is no such option but to wait till it recovers. You will hardly find a buyer for your house.
We should only invest in fixed income investments
This is another mistake that we all do. Equity investments form a negligible part of our investment portfolio. When you are young your risk appetite should be more to earn profits before it is late. If you dig deeper into this, you can understand that you hardly earn income out of your debt instruments. The main reason is inflation. After factoring for inflation on these investments, the return you earn is negligible, even though, you are sure to get back what you invested in return. Will you be satisfied if you get only the amount invested back?
SIP fetches you peanuts in return
SIP is a method by which you invest a fixed amount systematically. This is more or less like a bank deposit, but you invest in mutual funds that multiply your amount many folds. The portfolio manager invests in equity and debt instruments, prudently to mitigate the risk. As a result, you get better returns than any other investments. When you invest systematically, you can earn better profits and lower the risk of facing a loss.
What are the varieties about the investments you should definitely know before investing?
Buy low, sell high
Before investing in the share market, understand something about the market. Buy shares when the market is low or bearish trend prevails and sell when the market goes up or when the bullish trend prevails. Keep an eye on the market on a daily basis to reap profits.
Must Read: – 5 Tips For Better Investment In 2017
There is no sure thing like fixed return
When you invest Rs. 10 in the equity markets, don’t expect to get Rs. 15 in the next year. Your investment may fetch you only Rs. 12 sometimes. Be prepared to face the reality.
Look for the dividend you can earn
Instead of being vigilant about the stock prices, look out for the return you earn in the form of a dividend. Even when the market crashes, some companies would pay out excellent dividends to make their shareholders happy.
Think about numbers instead of price value of shares
Imagine that you are in a grocery store and are choosing things that you need on a daily basis, you would go for the number of things you want instead of concentrating on the prices. Similarly, don’t think that buying shares of value Rs. 1000 is very expensive or shares of value Rs. 10 is better. Think about which one fetches better returns for you.
There is never a good stock and a bad stock
You should never judge a stock because it has given 0 returns in the recent past. Or a stock is good because it has given high returns to the investors. The stock which gave huge returns may fall down steeply and the one which used to give low returns can give unimaginable returns to the investors.