5 points to note when investing in equities for 1st time

In an interview to CNBC-TV18, personal finance expert, Harshvardhan Roongta of Roongta Securities answered personal finance queries. He also pointed out things one should rememder while directly parking funds into equities.

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Below is the verbatim transcript of Roongta's interview with CNBC-TV18.

Q: If a small investor was to begin investing in the equity market directly, how he should go about doing it. What are the top five-six things that he needs to keep in mind?

A: This is a topic, which is lingering on the minds of all the investors that we meet specially the small investors who have not entered the equity markets as yet. I would like to take one step behind before we get on to how to exactly go about doing it. The first and foremost is that if one has a medical emergency or a complexity, do consult the person who is specialising in the field.

Therefore, my first advice and the first step would be to seek the help of professional who is in the financial field. Second, before taking a plunge into investing in equities, first draw up an asset allocation plan. That will only determine based on one’s age or risk profile or time horizon that one have. How much money should exactly go into equities? Once that has been identified, only that portion of money is strictly needs to be allocated to equities.

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For a new investor to identify stocks; there are couples of things he needs to do a detailed research upon because there are fundamental analysis and technical analysis of a company. Researching on a company is a science in itself. So, I would recommend for a new investor, for a person who just wants to enter into equity, into the stock market to first choose an index exchange-traded funds (ETFs). Index ETFs are listed on stock exchanges.

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These are basket of 30 stocks comprising either of the Sensex stocks or Nifty stocks. Therefore, the first step would be, in the first two years of investing into equities, it is important that a person sticks to the Sensex or the Nifty so that he is taken away from all the complexities related to researching on individual stocks.

Besides this if he has seen the performance of the Sensex since the inception or any period of ten years, it has given about 17 percent returns. So, for a new investor, small investor, it is important that he enters into some kind of a basket of stocks, which is already researched upon.

The final two points, which needs to be kept in mind while investing into equities are that one need to review portfolio in tandem with asset allocation plan. If the equity markets have fallen a lot or risen a lot, if the market are fallen the way they are in the current state then one need to buy more of equities and sell debt so that the percentage asset allocation remains the same.

The last point, which is relevant to investing, is that one need to be willing and be happy to pay for good advice. It is very unfortunate that we expect a person to give advice in his own favour when the financial planner or the agent has been taken care by the product manufacturer. So, if a person is being paid by somebody else, he is not going to give an advice in your favour. So, you need to be open, you need to be willing to pay for good advice. 

These are a couple of points. If one just maintains this, the flow and the decorum; I am sure investing into equities can be a very happy feeling even for a new investor.

Caller Q: Will I get all benefits if I start a Public Provident Fund (PPF) account with a private bank?

A: Opening a PPF account in a public sector bank or in a private sector bank does not make any difference. It is more of a convenience that you are opening an account with a bank, which is in your vicinity or locality. Therefore, you can surely go ahead, open the PPF account, deposit the money because you want to save tax and you will get all the benefits that are eligible for a regular PPF account. There is no difference between opening an account in public sector or private sector bank; the scheme operates in its form whether you do it from State Bank of India (SBI) or from a private sector bank.