Suhani could choose to be a practical investor and choose his own stocks. Otherwise, she may choose a robotic advisor, a service that offers inexpensive investment management. Most brokerage firms offer these services, which will help her invest according to her specific goals. Robo Advisors are experts who offer advice on selection and investment process. To invest in stocks, she generally needs a demat account with a brokerage firm. She would like to evaluate brokers based on factors such as costs (trading commissions, account fees), investment choices and investor research and tools.
For most people, stock market investing means choosing between two types of investment: equity funds or exchange traded funds. Building a diversified portfolio out of many individual stocks is possible, but it requires significant investment. The downside of equity funds is that they are inherently diversified, which reduces her risk. It is unlikely that mutual funds will rise meteorically, as some individual stocks might. The downside of individual stocks is that a wise choice can pay off nicely, but the odds that any stock will make her rich right away are pretty slim.
Suhani must also set up a budget for its equity investments. The amount of money she needs to buy a single stock depends on how expensive the shares are. Stock prices can range from just a few rupees to a few thousand rupees. Mutual funds typically have a minimum SIP of Rs 500. She can allocate a fairly large portion of her portfolio to equity funds, especially since she has a long time horizon. The best thing to do after she starts investing in stocks or mutual funds may be the hardest. She must not look at them unless she is trying to beat the odds and succeed in day trading. It is recommended that she avoid the habit of forcibly controlling how her shares perform several times a day each day.
Once invested in stocks or mutual funds, Suhani should visit her portfolio a few times a year to ensure that it is still in line with her investment goals. If her portfolio is overweight in a sector or industry, she should consider buying stocks or mutual funds from different sectors to build a more diversified portfolio. She could also consider geographical diversification (through international private equity funds) for effective diversification.
(The content on this page is courtesy of the Center for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
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