Things to keep in mind while investing in stock market

Investing in the stock market can be an exciting yet daunting endeavour. With the potential for high returns comes high risks as well. As a beginner, it’s important to educate yourself before putting your hard-earned money into stocks. By keeping a few key things in mind, you can set yourself up for smarter investing decisions.

1. Have a Plan

Having a sound investment plan is essential when venturing into the stock market. Decide on your financial goals – are you investing for retirement, saving up for a major purchase, or just looking to grow your money? Determine your risk appetite – how much volatility can you stomach? Conservative investors may prefer steady blue-chip stocks while aggressive investors pursue high-growth options.

Set investment time horizons – are you investing for the long-term or looking to actively trade? Long-term investments of 10 years plus allow stocks time to recover from temporary dips. Also allocate an appropriate portion of your total assets towards stocks – experts recommend limiting it to 10-30% of your total savings.

2. Understand Company Fundamentals

You don’t want to simply throw your money after hot tips and rumors. Fundamental analysis involves assessing quantitative factors like financial statements as well as qualitative ones such as management performance to determine a stock’s intrinsic value.

Key ratios to check would be the PE (price-to-earnings), PB (price-to-book) and debt-equity along with past performance. Compare across its industry peers too. This helps gauge whether a stock is under or overvalued. Investing in stocks trading below intrinsic value can provide good upside when prices recover.

3. Diversify Across Sectors

Don’t put all your eggs in one basket, especially in volatile sectors like IT or real estate. Diversifying across market sectors ensures that while some stocks may falter, others can balance them out.

Core sectors that usually see steady, stable growth would include finance, consumer goods and healthcare. Defensive sectors like utilities and telecoms offer safety too during market crashes A balanced portfolio allows you to withstand interim drops and protect your overall capital.

4. Factor in Costs

Brokerage fees, account charges and taxes eat into your returns so keep them low. Opt for reputable low-cost brokers and fund houses. Choose index funds and ETFs over traditional mutual funds – their passive investing approach carries significantly lower expense ratios so more of your money stays invested.

Also account for capital gains tax, dividend tax and securities transaction tax when planning exits or rebalancing your portfolio. Overall minimizing costs means better compounding over the long run.

5. Stay Invested

Timing the market is tremendously hard. Investors who missed just the 10 best stock market days between 2001 and 2012 earned less than half the returns compared to those who remained invested the whole time.

So don’t panic and exit positions in down markets. The long-term trajectory for quality stocks is upwards. Have patience and discipline to hold positions through ups and downs instead of impulsively liquidating them during volatility.


Investing in equities or trading via 5paisa carries risk but can also create significant wealth. By planning properly, evaluating stocks judiciously, diversifying sensibly, minimizing costs and avoiding reactionary decisions, retail investors can position themselves for solid returns over time through the stock market. Follow these tenets and you’re on your way to building a successful investment portfolio.

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