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Investing Money in Stocks

Why, how, where and when to invest are the four basic questions, experts say it is important to have answers for before jumping into the equity market, that makes it easier to approach the investment process methodically.

There are various options to invest in stocks; however what option to choose depends on the financial goal and the level of risk tolerance of the investor.

For the relatively conservative investors, who would like to take it easy and play safe, here the options:

Balanced Mutual Funds:  Almost every bank and financial institutions offer mutual fund scheme, these are collective investment vehicle where the funds are managed and invested in the securities by professionals. The risk factor is really very low here, as it is managed professionally and since it is a collective vehicle, one can invest a small amount to start with. These funds are much safer and have a decent track record for years now.

Diversified Mutual Funds: Unlike balanced mutual funds in diversified mutual funds the investment is spread across a wide variety of sectors and is not restricted to a singular sector. For a long term investment in stocks with lower risk tolerance, diversified mutual funds is the best option.

For investors who would like to tread into daily online trading, here is what they need to know:

To trade online one needs a demat account and a brokerage account, usually the demat accounts are offered along with a brokerage account, with the help of which one can start trading online, which is buying and selling securities. These transactions are done without signature, an agreement that investor has to sign at the time of opening the account. An online message from the investor for a trade works as the authorization for the transaction.

An individual trader has various options when it comes to transacting online. Online trading can be done on both Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE).

Types of Trades

Intraday trading or margins trading: This means stocks bought in the morning can be sold before the closure anytime during the day, this intraday buying and selling of stocks is all referred as short selling.

Delivery trading: Means the stocks bought with delivery option can not be sold the same day, if sold then they change to intraday trading stocks and the brokerage paid on those trades would be around 0.02%- 0.04%. Stocks with Delivery trading option can be sold anytime after a day (24hours), which could be the very next day, month, year or years. Even though in delivery trading the brokerage is high, the returns are also much better and higher. Here the investor can wait for the share prices to go up and then sell; where as in intraday one might run into losses if the share prices dip.

The other instruments that can be bought and sold online are futures and options, initial public offerings (IPO), commodity derivatives and sometimes mutual funds.

It is also important to remember that stock market is dynamic and volatile, hence investing money in stocks could get risky at times.  But if done carefully, one can reap the benefits of long term wealth accumulation. Having enough buffer, cash reserves is the first requirement, so that no matter the pros and cons, there is contingency to fall back on.

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