Many investors chase returns, without analyzing the risks, says Kavitha Subramanian, Co-founder, Upstox.
In an interview with MintGenie, Subramanian said that those who indulge in ‘emotional trading’ are unable to handle market volatility.
Edited Excerpts:
Q. What according to you is the most common mistake investors make while buying and selling stocks?
The first mistake people make is to ‘Not Invest! Indians save rather than invest. It’s important to start your investing journey and start it early in order to beat inflation and build wealth. Else, rising prices can eat into your savings. ₹1 lakh today will buy you goods worth less than ₹22,000 in 25 years at a six per cent inflation rate. The best time to start investing is with your first paycheck, the second best time is now.
The second mistake is, they do not ‘Invest Right’. Many investors chase returns, without analyzing the risks. Many are unaware of tools and techniques to reduce risk. One must also understand fundamentals.
Another common mistake is allowing fear or greed to influence investment decisions. Those who indulge in ‘emotional trading’ are unable to handle market volatility and display knee-jerk trading reactions to market news.
Q. Many investors are financially illiterate, which explains their recurring losses in the market. Any tips to minimize losses?
Financial illiteracy is a significant problem among investors, often leading to recurring losses in the market. To ensure even new investors can invest right, we stress ‘The 5 Truths of Investing’. These include
Invest small amounts for the long term: Even a SIP of just ₹5,000 a month, for 25 years, in instruments that return 12.5%+ p.a., can help you build over ₹1 crore + of wealth!
Track the indices: One of the best places to begin is to start investing behind the NIFTY50 index and track India’s growth story. The NIFTY50 is a portfolio of India’s top 50 companies. You can invest in index mutual funds, or ETFs, that closely follow the NIFTY. These will help your investments follow the Nifty’s trajectory at a low cost.
Invest for the long term: Try not to chase short-term gains. Try not to panic over short-term volatility. Invest in strong and long-term fundamental trends. India is the fastest-growing largest economy in the world and is forecast to overtake the US economy over the next 25 years. That’s a strong fundamental story to invest behind.
Diversify: Don’t put all your money in one concentrated portfolio of stocks or trades. Hedge using other asset classes like fixed-income funds and gold.
Choose direct mutual funds over regular plans: The direct mutual fund plans on our platform are sold directly from an asset management company to a customer. Regular plans are sold via advisors. Direct plans can offer up to two per cent per annum more returns than regular plans.
Q. When it comes to investing, many investors find it challenging to identify the right kind of path to follow. How are you guiding users and simplifying their investing journey?
There are about 2,500 actively traded and listed stocks and 10,000 plus mutual funds. Picking the right stock or mutual fund is tough. We make investing easy for our customers.
- Investors and traders have very different needs. That’s why we stress user experience that makes investing a joy!
- We stress sharing information in a way that is super easy for anyone to access and invest behind. Most platforms only provide information on returns and completely ignore risks. We wanted to change that.
- We enable stock investing with confidence by being tightly aligned with the long-term best interests of the customer. Our goal is to make “Investing Right Easy & Accessible” for everyone.
Q. Which investment do you think everyone must have?
When it comes to investments, there is no “One Size Fits All” approach. However, there are some investment options that we believe are essential to every portfolio. The first is Index Funds. These are mutual funds that invest in all the stocks in a benchmark index, such as the NIFTY50. The portfolio is structured in the same weightage as the index, making it a true copy of the index.
So, the portfolio mirrors the performance of the market index. As the portfolio is passively managed, the expense ratio is lower than that of actively managed funds in other categories such as large-cap funds, etc.
There are two ways to invest behind the index: Through index mutual funds or ETFs. Both are low-cost ways to invest as well. In the mid to long term, ETFs perform better than index funds though the difference is marginal, and either is a great choice.
Apart from index funds, investing in debt via fixed-income instruments and gold via sovereign gold bonds is also essential. These investments function as an effective hedge against inflation and volatility. Fixed-income instruments have lower volatility. Gold is a safe haven asset and can help diversify your investment portfolio.
