Choosing investments
What to buy, and more usefully, how to decide what to buy.
Should a beginner buy stocks or mutual funds first?
For most beginners a broad index fund through a monthly SIP is the more sensible starting point. It spreads your money across many companies at a very low fee and does not require you to judge an individual business before you have learned how.
What is the difference between an ETF and an index fund?
Both can track the same index and hold the same companies. An index fund is bought from the fund house at the end of day NAV and needs no demat account. An ETF trades on the exchange at a live price through a broker, and each trade carries brokerage and a spread.
What is the difference between a direct and a regular mutual fund plan?
They are the same fund with the same manager and holdings. The regular plan has a distributor commission built into its expense ratio, paid every year out of your money. The direct plan has no commission, so it costs less and its NAV is higher.
How do I know if I have a direct or regular plan?
Look at the scheme name on your statement. A direct plan includes the word Direct in its name. If it does not appear, you hold the regular plan. The direct plan of the same scheme also always has a higher NAV.
Are index funds good for beginners in India?
For most beginners they are a sensible starting point. They remove the need to judge a fund manager, cost very little, and spread money across many large companies from the first instalment. They do not reduce the risk of the market falling.
How do I analyse a company before investing?
Work in order. Understand what the business sells and how it could fail, check the numbers across five to ten years, judge management by their record across consecutive annual reports, then assess whether the price is reasonable, and finally write down your reason and what would change it.
Is a low PE ratio always good?
No. A low PE can mean the market is being too pessimistic, or that it correctly expects profit to fall. In cyclical industries the PE looks lowest at the top of the cycle, right before earnings decline, which is the opposite of what it appears to signal.
How many stocks should I own to be diversified?
Around 20 to 25 companies spread across different industries captures most of the available benefit. Beyond about 50 the extra protection is minimal, and beyond about 20 most individuals stop being able to follow each holding properly.
Is owning many mutual funds the same as being diversified?
Often not. Large cap funds in India hold heavily overlapping portfolios, so six of them may collectively hold the same thirty companies. That is one bet with six statements rather than six independent positions.
How should I invest in gold now that SGBs have stopped?
For most people the practical choice is a gold ETF or a gold mutual fund. The ETF is usually cheaper if you already have a demat account, and the gold fund suits a monthly SIP without one. SEBI has cautioned about digital gold, which sits outside its regulation.
Should beginners invest in IPOs?
With more caution than usual rather than less. The seller chooses the timing and influences the price, and you have only one offer document to judge by rather than years of results. Waiting six months after listing costs nothing and replaces a promotional document with actual evidence.
Can Indians invest in US stocks?
Yes, under the RBI Liberalised Remittance Scheme, which allows up to USD 250,000 per person per financial year across all purposes. An Indian mutual fund or ETF investing overseas achieves similar exposure without using your LRS limit or requiring foreign asset reporting.
Lessons behind these answers
Index funds
Funds that copy a market index instead of trying to beat it.
ETFs
Funds you buy and sell like a share, usually at a very low fee.
Direct vs regular plans
The same fund at two different fees, and what the gap costs over 20 years.
Company analysis
Judging a business without an accounting degree.
Financial ratios
PE, ROE, debt to equity and the rest, each in one sentence.
Diversification
Spreading money so no single mistake is fatal.