How to start investing in the share market first time - Build a stock portfolio invest your first 1 lac

Namaskar, I am Saumya Manna and today we will talk about how to start investing in the stock market. Many people are interested in the market, but don't have the knowledge and don't where and how to start. So today we will talk about a very important topic for beginner, how to invest your first Rs.1 lac.

start investing in the share market first time

So how should your portfolio look like, how should asset allocation be done, but first lets understand this simple rule of personal finance.

  •       The first step is earning 

  •        Second step is saving

  •       And the last is investing 

We invest to achieve our financial goals, investing is a long journey not a destination. And our goals are achieved faster if we start these 3 steps early.

So if you are in your early 20s, don't think of a figure, just start investing. The first step to achieving anything is to start. The main thing in this is to start early.

So if you are waiting for money to accumulate and then invest, it is wrong. You can start with Rs.100 per month in a mutual fund. Now you cannot buy a major stake with 1lac but will be an important step in your long investment journey, when you start an open mind and a diversified portfolio will help If you keep your portfolio concentrated, then it is a double-edged sword.

If everything goes according to you, then cheers you will get good returns and if it doesn't you will lose your money with the will to invest further A diversified portfolio doesn't see many ups and downs, but to come first in a marathon, you need to finish it.

And investing is no less, hence asset allocation matters a lot. So if you are an early investor, you should most of the amount towards equity, because any asset class cannot beat equity in 10-20 years.

Though equity is riskier, since you are young and can have time so you can take up that risk, high risk is high returns. Now let us talk about the categories of assets you should have in your portfolio.

1. Index fund

The first is an index fund, you can consider this as a mutual fund that tracks an exchange like nifty or sensex. That means its components and performance will be the same as the one it is tracking, Here you get the triple benefit, broad market exposure, no fund manager risk, and very low cost of investment.

According to the legendary investor Warren Buffett, if you don't have knowledge or the time to research, best is to invest in index funds. When you invest in an index fund, you actually invest in a large number of stocks that is a part of different industries. Hence it's less risky to invest in index funds rather than individual funds.

2. Blue-chip companies

Now let us talk about blue-chip companies, these are the ones working for many years. The ones that have seen many business cycles, are well established and financially sound. They have dependable earnings and give out dividends. You won't see much growth but they save your portfolio from the downside.

3. Dividend yield

Now about dividend yield, these provide stable income in the portfolio in the form of dividends. Dividend yield is calculated by dividing the annual dividends per share by the price per share 10% dividend yield means that the company is giving you Rs.10 dividend per Rs.100 invested In the total returns of an investor, both share price appreciation and dividends are included.

We tend to ignore these stocks, but they provide you income even in the bear markets. The companies that give out regular dividends are considered stable and profitable over a long time.

4. Growth companies

Now let us talk about growth companies, if you are starting out early, you can invest a big portion in growth stocks. They might look expensive, but you have time by your side for compounding.

From 1995 to 2020, the highest companies that gave the highest compounded annual return are Berger Paints, Shree cement, Eicher Motors, Pidilite Industries, and Infosys. In 1995, these all were small-cap companies, but with time they grew and gave great returns. These stocks have high reward but with high risk, so be careful while investing. 

5. Value investing

Now let us talk about value investing that is a form of investing in which we pick those stocks that are trading below their intrinsic value meaning their price should be higher than their current price. 

Value investors pick those stocks that according to them the market is underestimating. They feel that the market overreacts to bad news and hence their share price doesn't match with the long term fundamentals. It is less risky to invest in these than growth stocks because their price is already low when you invest.

Now let us see alternate assets that provide options other than equity in your portfolio. These asset classes and equity either have a negative correlation or a low correlation.

Hence they work in the opposite direction and when the market crashes, they can hedge your losses. They can be gold, commodities or any new asset class in which you invest a small amount. The amount is dependent on how much you want to diversify your portfolio to protect you from downside.

Now for your understanding, lets talk about an investing idea, you can invest 20% in index funds 20% in blue-chip, 15% in dividend-paying companies, 20% in growth companies 20% in value stocks and 5% in alternate asset classes and don't think that these have to be exact/fixed.

You can adjust it according to your risk appetite and your needs, the main idea is to protect the downside. So I hope you might have understood about investing, remember this is just a basic framework. As your investing experience builds, you will be able to change it according to yourself.

Now you can also read Share Market Se Paise Kamane Ka 5 Tips

That is then end of this article.

Good Luck : )

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