Hello readers, we are happy to announce that our team of MoneyWiseMind.com launched a new section “Investing Insights: Weekly Q&A for Stock Market Newbies”, to spread the basic stock market knowledge to the beginners.
This
is your go-to resource for demystifying the stock market from the scratch. Each
day, we will present 10 carefully curated questions with answers that will
cover essential concepts, strategies, and terminologies. Whether you have just
entered into the market, or trying to starting your stock market journey, or
looking to strengthen your foundation, our weekly post will guide you through
the basics and beyond, making investing accessible and understandable for
everyone. Happy reading.
Day 39: Basic Stock Market Concept
1. What are
Blue-Chip Stocks and should Beginners buy them?
Blue-chip stocks are shares of large, well-established companies with
strong financials and long track records (e.g., Reliance, HDFC Bank). These are
excellent for beginners because they're stable, pay regular dividends and
weather market downturns better.
Start with 3-5 blue-chip stocks as the core of your portfolio
before exploring riskier options. They grow steadily rather than skyrocketing
overnight, which helps beginners learn patience in investing.
2. How do Beginners
Identify Market Trends?
Look at the overall market direction over 6-12 months rather than daily
fluctuations. An uptrend shows higher highs and higher lows on charts, while
downtrends have lower highs/lows.
Beginners can check Nifty 50/Sensex performance, if these indices are
rising steadily, it's generally a good time to invest. However, don't try to
perfectly time the market. The best approach is consistent investing regardless
of short-term trends.
3. What’s the
Difference between Growth and Value Stocks?
Growth stocks (like new tech companies) reinvest profits to expand
rapidly, while value stocks (like established manufacturers) are undervalued
relative to their fundamentals. Beginners should balance both - growth stocks
offer higher potential returns but are riskier, while value stocks provide
stability. A simple strategy is to invest 60% in value stocks and 40% in growth
stocks when starting out.
4. Should Beginners
Invest in Sector-Specific Funds?
Avoid concentrating in single sectors (like only IT or banking)
initially. Sector funds require understanding industry cycles that beginners
lack. Instead, choose diversified equity funds covering multiple sectors. After
1-2 years of experience, you can allocate 10-15% of your portfolio to promising
sectors, but never put all money in one industry.
5. How do Stock
Splits Affect Beginners?
When a company splits its shares the total value remains same but
shares become more affordable. Suppose, a company has 1000 shares of Re.1,if
the company convert these shares at Rs.10 each of 100 shares, the original
value remains same.
This is good for beginners who can now buy shares of expensive
companies. Splits often indicate company growth but don't automatically make a
stock better.
Focus on the company's fundamentals rather than split announcements.
6. What are
Stop-Loss Orders and should Beginners use them?
A stop-loss automatically sells a stock if it falls to a specified
price, limiting losses. Beginners should set stop-losses at 10-15% below
purchase price for volatile stocks. This prevents emotional decisions during
market drops. However, don't set them too tight (below 2%) as stocks often
fluctuate normally.
Use stop-losses mainly for short-term trades, not long-term investments.
You can keep stop-loss on closing basis on respective timeframe in your
investment portfolio. Finally, it fully depends on individual's risk appetite
and money management.
7. How do Beginners
Track their Investment Performance?
Compare your portfolio's growth to benchmark indices like Nifty 50 over
the same period. If your portfolio consistently underperforming, reassess
your strategy. Track absolute returns (total profit/loss) and annualized
returns (yearly growth rate). Use free portfolio tracker apps that show these
metrics automatically. Review performance quarterly - too frequent checking
causes stress, too infrequent means missing problems.
8. What are the Tax
Rules Beginners should know?
Profits from stocks sold within 1 year are taxed at 15% (short-term
capital gains). After 1 year, gains up to ₹1 lakh are tax-free, beyond that
taxed at 10% (long-term). Dividends are taxable as income. Keep records of all
transactions for tax filing. Tax-saving equity funds (ELSS) offer deductions
under Section 80C. Understand these basics to avoid surprises during tax
season.
9. Should Beginners
Attend Shareholder Meetings?
It is not essential to attend shareholder meetings. But attending annual
general meetings (AGMs) helps understand company management. Many companies now
offer virtual AGMs. Beginners can listen to management discussions about future
plans and challenges. This provides insights beyond financial reports. However,
don't make decisions solely based on charismatic presentations - always verify
claims with actual financial data.
10. How do Global
Events Affect Indian Stock Markets?
Global events like US elections, interest rates changes, oil price
changes, foreign investor actions or geo-political events impact Indian
markets. Beginners should be aware but not overreact. During global crises,
diversify into defensive sectors (FMCG, healthcare) that are less affected.
Remember that quality Indian companies with strong fundamentals
eventually recover from global shocks. Follow business news to understand these
connections without making panic decisions.
If you have any other questions in your mind relating to stock market basics or need any clarification, please put your query into the comment box, We will try our best to clarify the same
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
