As the festival of Diwali arrives in full swing, people are getting ready to celebrate the festival with festive fervour and enthusiasm. Diwali is one of the most important festivals for the Hindu community and is celebrated in a lot of ways. People buy new clothes and items for their house, light diyas and burst the occasional crackers. Another tradition that is followed on Diwali is the tradition of buying gold and silver on the occasion of Dhanteras, which is considered the first day of Diwali festivities. Over the past few years, instead of investing in gold and silver on the occasion of Dhanteras, many people have also started into equities like stocks and mutual funds. However, investing in equities without fundamental knowledge about the stock market and investing can lead to financial losses.
When it comes to investing in the stock market, equities refer to the stocks or shares of a company that serve as proof of ownership. For instance, if you own 0.5% shares of a company, it essentially means that you own 0.5% of the company. When you buy the shares or stocks of a company, you also become a shareholder of that company. Moreover, mutual funds are also considered to be a type of share, since, under mutual funds, you own multiple shares of different companies, which makes you the shareholder in those companies. People generally buy stocks and shares to get dividend income and increase their wealth through the increase in value of the stocks/shares/mutual funds over time. Buying shares/mutual funds are universally considered to be one of the best ways to grow one’s wealth.
As mentioned above, investing without the proper knowledge can lead to losses on your part. For your consideration, we have listed a few important factors that you should consider before you buy any type of equity, be it a stock or a mutual fund.
Time Period: First, you have to decide how much time you want your funds to remain invested in the stock market. Depending on your investment time horizon, you can choose to invest in short-term, long-term, or medium-term stocks.
Check Fundamentals: Before you buy any company’s stock you need to understand the company’s fundamentals properly. Fundamentals include the Price to Earning Ratio (P/E Ratio), Debt to Equity Ratio, and Price to Book Value Ratio (P/B Ratio). If all of these ratios are in healthy proportions, only then should you go ahead with buying the stock.
Stock Performance: Another very important factor to keep in mind is how well the stock has performed over the long term, compared to the top or most prominent stocks in its segment. If the stock has performed consistently, matching or exceeding the performance of other similar stocks, in its segment then you can consider buying it. When it comes to mutual funds, you can compare the performance to other mutual funds in the same segment.
Size Of The Company: The scale and size of the company is also an important factor to consider when buying a stock. In case of an economic downturn or sustained losses, a larger company can come out of these situations unscathed. However, a smaller company may not be able to get through the economically difficult times and collapse.
Dividend Payout History: If you are looking to buy stocks in order to earn dividends, then you must also look at the stock’s dividend history and how consistently the company has been paying out dividends. A company that consistently pays out dividends also signifies that the company is making profits year after year.
Disclaimer: The above information should not be constituted as financial advice and BQPrime does not endorse any stocks/mutual funds mentioned above. Please invest at your own discretion.
