Markets inherently possess risk but investing in markets may also result in generating higher returns than that of savings. Is it still a right choice to invest in equity? Perhaps, there are more ways to find the answer. But to find the answer one needs to find where he/she stands in investing. There are a few tips we would like to highlight. Following are 5 habits to be adapted by the low risk investors.
Start Small
If you have already thought of investing in equity, pat yourself for your decision. Investing in equity with less or no knowledge is not a wise decision, but you can identify an Equity Mutual Fund scheme with good fund managers and focused portfolios. Fund managers research and analyze the equity markets for your investments. If a lump sum investment seems difficult, you can start with a SIP by investing as low as Rs. 1000/- in a Mutual Fund Scheme.
Invest for long term
Markets may be volatile in the short run but could be rewarding in the long run. If you want to start with SIP, commit for a long term. Your regular and small investments may reap high returns in the long term. For a low risk investor, patience may turn to be the beneficial factor in equity. Mr. Warren Buffett says, “Our favorite holding period is forever!” Understand the magic of compounded returns. Longer the period, higher can be the compounded returns. Remember your quality investments may take a while to generate quality returns.
Diversify but focus
As you invest in equity, diversifying your investment lowers your risk. But having too many stocks in your portfolio makes it difficult to manage your stocks. Statistically, having too many stocks in a portfolio does not make much of a difference in risk. 20-25 stocks in the portfolio may just do enough. For your low risk appetite, invest in quality companies or Mutual Funds with focused portfolios. Having a sectorwise diversified portfolio is relevant not only for the current market scenario but also for the future.
Save your cuts
As a low risk investor, you need to save on unnecessary cuts from your income and investment returns. Mutual Funds schemes often charge you with the exit load. Simply, it’s the cost that is cut from the redemption of your investments. Higher the returns, higher will be the exit load. Thus, invest smartly in the Mutual Fund Schemes which do not charge exit load but consistently performs well. Churning your portfolio regularly also invites charge but if you make quality investments for a longer duration you can avoid churning of your portfolio. Invest in Equity Linked Saving Schemes (ELSS) for tax benefits. If the investment in ELSS is for more than 1 year, capital gain is exempted from the taxable amount u/s 80C of Income Tax Act 1961. You can invest into ELSS and deduct upto Rs. 1,50,000/- from your taxable income effectively. You can also start an SIP for ELSS with as low as Rs. 500/-
Invest first and spend the rest
It is seen that the novice investors spend first and invest the rest. As your expenses may vary according to your habits and income it is mandatory to inculcate discipline of investing. Some investors break the discipline of investing which affects the possible returns. Investing giants say, Invest first and spend the rest. This habit may secure returns for the future and would inculcate the habit of spending money wisely. Consistently update your knowledge about markets.
Disclaimer: Investors are advised to consult their tax advisor in view of individual nature of tax benefits. Further, tax deduction(s) available u/s 80C of the Income Tax Act, 1961 is subject to conditions specified therein. Investors are requested to note that fiscal laws may change from time to time and there can be no guarantee that the current tax position may continue in the future.
