The stock market is now on a different level with retail investors batting on the front line like never before. As evident from the recent Association of Mutual Funds in India (AMFI) data, the value of mutual fund holdings by retail investors went up by 10.96 per cent in just a year.
Now, compare this with the rise in institutional assets that went up by a mere 1.59 per cent from ₹17.33 lakh crore in April 2022 to ₹17.60 lakh crore in April 2023.
The statistics reveal the rise of the retail investor segment or rather its power or increasing interest to earn from the stock market, albeit through professionally managed funds. The increase is not sudden but gradual, though the chaos it has created is similar to the euphoria that online gamers experienced with the launch of “Rise of the Tomb Rider”, an action-packed video game in 2015.
Retail investors are doing really well enough to disrupt the Indian stock market by choosing between stocks and funds based on the information available on the internet and with the help of professional financial advisors.
The “Do It Yourself” investing technique has also worked well, thanks to the deluge of experiences shared by timeless investing principles by professional investors. Ask retail investors about what makes them successful and earn from the market, and you will find many of them sharing some common investing mantras applicable to one and all. These include:
Quality matters beyond anything
No matter what market gimmicks mutual fund houses post about their AUM sizes or how well they performed in a particular year, alert investors cut through the noise and focus only on the fund quality.
To start with, they will look at the consistency with which a particular fund has been performing over the past decade or more. Then, they will check for other parameters like the stock portfolio of the fund to decode market capitalization, the portfolio turnover ratio to check how frequently the fund is churned in sync with the market, expense ratio to check how much is the fund charging, standard deviation compared with the standard average to check for the extent of volatility in the fund and if the fund has high Treynor’s ratio to gain from better risk-adjusted returns.
Last but not least, the quality of the fund manager indeed matters, which is why their past performance is checked to assess their judgment during sudden market downturns.
A strong moat
Experienced investors do not just buy stocks or funds because of their low pricing. Growth matters more than pricing. Many investors boast about how they learned the importance of the moat after going through countless investment theories by great management gurus.
The idea behind great investing is to identify stocks of companies with a strong moat, thus, hinting at why a particular company will continue to grow despite all odds and attract customer attention more than its peers.
The secret to growth is not in how a company manipulates its stock prices but in how it continues to deliver strong performance year after year, thus, allowing better growth margins with more profits every year. This is true of mutual fund investments too.
Irrespective of so many funds in the same market cap category, only some funds outperform others, thereby, helping investors create wealth. Look at the fund data for the year-on-year performance of each fund, compare it to others, and you will realize why it is imperative to choose the right mutual fund than just any fund at all.
Do not lose capital
You surely cannot create wealth unless you know well enough how to preserve wealth. Before wealth creation, capital preservation is of utmost importance. Be aware of when you put your money in the market. Do not just invest or jump into the market. Remember, when the market falls, all stock prices come crashing down. However, it does not take long for good stocks to recover to their original prices and enjoy a joyride when the market is in momentum.
The key to investing well is the preservation of capital, which is possible only when you focus on stock valuation than stock prices alone.
Don’t shy away from market volatility
There is no way that you can avoid market volatility. Learning to deal with it will help you earn money eventually. New investors tend to flee the market when it falls without realizing how the time is ripe to identify the right stocks and buy them.
Apart, how long you must stay invested depends on your financial goals. However, sudden market movements create unwarranted panic, causing investors to sell off their investments.
The trick is to not let market volatility affect your investment decisions. Make your buying and selling decisions based not on market movement but upon your conviction to decide at what price to buy and sell your stocks.
Diversification is the key
Good investors are not rigid and are willing to spread their investments in different investment options across different categories. This means that not all their money would be holed up in equities and stocks. You will find a part allocation in debt funds or hybrid funds, government-sponsored schemes, gold, and real estate. Some government-sponsored schemes like the Public Provident Fund (PPF) or the Employees’ Provident Fund (EPF) continue to be an important part of many investment portfolios.
The gleam of gold has caused many people to invest in them. Gold prices are constantly rising while debt funds have lost their indexation benefits, thus, causing many people to make a major allocation to gold exchange-traded funds (ETFs), gold mutual funds, bullion, and sovereign gold bonds (SGBs).
Real-estate investments are equally good and with new fund offers like the most recent UTI S&P BSE Housing Index Fund on offer, many people have an avenue to invest in real estate via mutual funds.
There are so many ways to earn good returns that one must stay focused on various investment options before deciding which of them would suit them best. Investing in equities may seem enormously confusing at first, but you will surely get the hang of it once you realize the factors affecting market movement.