Tips for small investors on shares

We small investors must understand a few golden rules for investing in stocks (delivery based investments):

1. Do a small research about the company background. Mainly check the following : Share holding pattern, Profits / losses of the company, Dividend paying history, share price movements and latest news / announcements.

2. Focus more on the investment value. Rather than the share price of the stock. For example, if you want to invest in a penny stock say X which has a CMP of Rs 2. For example, you want to buy 5000 shares of the same, then your total value of investment would be 2 X 5000 = 10000. However, instead of taking risk with unknown penny stock, you might as well buy 100 shares of a good scrip which has a CMP of Rs 100 (100 X 100 = 10000). Hence, with same level of investment, your downward movement of investment is reduced. Your risk levels are reduced. Also, your tension would also reduce. You can focus more on your other work / family and also get handsome returns.

3. Contentiously short term buying / selling involves a high amount of risk, not only in terms of loss in expected profits. At the same time, what is the guarantee that you have sold at the correct time, and will buy when the stock goes down. What if it doesn't go down when you want to buy ? Then you will end up buying at a higher rate.

4. There is one more hidden devil called brokerages. It will also eat into the small profits that you want to make in short term. Hence, it is always more profitable to have a continuous and un-interrupted holding for a reasonable amount of time.

4. One very important point is : if you hold for more than a period of one year, you are not required to pay any taxes out of your profit, because it comes under long term capital gains, which is non-taxable.