Recollect the table printed in the business section of newspapers with a lot of numbers that seemed like greek to you? Or those tickers flashing on new channels which seemed to buzz past the screen before you could even blink? They were nothing else but stock quotes and tables. (Thanks to technology, they are available online as well these days)
Stock quotes may seem intimidating at first, but once you understand the data points, you will be surprised with how simple yet effective they are.
Why you should be able to read a stock quote
You need to know the past, to understand the present. When you invest in a stock, you should have information about how its price has behaved (gone up and down) historically. After making sure that the stock qualifies on the checklist (Refer Finding Stocks for Investment), you need to decide on your investment timing as well.
Though we don’t believe that there is one “perfect” time to enter the market, investing at a time when the stock prices are reasonable and have not hit their saturation point is important. One of the most talked about financial strategies is to buy low and then sell high. Stock quotes support you to make these decisions. Even after investing in a stock, you should keep on monitoring their performance and growth on a periodic basis. Again stock quotes will come handy in such reviews.
Bottom Line: Stock quotes give you important insights about the stock’s performance. Without understanding them, you would not have complete information required to make a good buying or selling decision.
Let’s start planning your finances!
How to read stock quotes and tables?
In order to read stock quotes, you need to understand its various elements and their implications.
1) Company symbol
Stock tables have limited space that they can dedicate to each stock. Hence, in order to display maximum possible stocks, they display a symbol instead of the company’s name. For instance, Infosys limited is denoted as INFY on the stock table. Usually the stock table lists all stocks in alphabetical order (of symbols).
2) Highs and lows
Share prices keep on fluctuating throughout the course of the market working hours. The stock table mentions the two extreme points – the maximum price and minimum price that the stock traded in a particular day. The price range (difference between these two points) helps you to understand the volatility faced by the stock on a given day.
You can try to co-relate the volatility with the major events that have taken place so as to understand the impact of specific activities on that stock’s market value.
This column helps you understand the stock’s growth or trading range for a longer time period. It shows the maximum price and the minimum price at which the stock has traded in the last 52 weeks (one year).
This column mentions the last price at which the stock was traded that day. For next day trading, you can refer to this close price as a ballpark figure of what you can pay for the stock.
5) Net Change
Net change indicates the growth or degrowth in the stock’s price as compared to the previous day. It is mentioned in absolute terms as well as a percentage of change.
Net change is calculated as:
(Today’s close price less Previous day’s close price) divided by previous day’s close price
When the net change is a positive value, the stock is highlighted in green colour. On the other hand, for a negative change, it is shown in red.
Dividends play a significant role in stock selection, especially for long term investors. Hence, stock tables provide information regarding the dividend per share or dividend yield so that you can compare it against the stock price. (If the dividend field is blank, it indicates that the company is currently not making any payouts)
Dividend Yield is calculated as Dividend per share divided by Stock price. Higher is the value of dividend yield, higher is the return on your investment.
You would have come across this financial ratio in the earlier articles as well. It is one of the most commonly used data-point while assessing a stock’s true potential especially in relation to its financial performance. It indicates how much you (as an investor) are paying for every rupee earned by the company.
PE Ratio is calculated as:
Stock price divided by the EPS (Earning per share)
A high PE ratio indicates that the stock is overvalued(costly). Conversely, a low PE ratio indicates that it is undervalued.
8) Trading Volume
This shows the number of shares that were traded in a day. It is expressed in hundred. So, in order to get the actual number, you need to append “00” at the end of the mentioned number. A heavy trading volume is generally followed by a major change (up or down) in the stock price.
Stock quotes are a powerhouse of critical information, which can help transform a newbie investor into a savvy one! Read, understand, draw insights and take smart investment decisions!
Change is the only constant, especially when it comes to share prices. As an investor, it is important to understand the reason behind the changes in share prices. It will help you not only to take well-informed and correct investing decisions, but also save you from a lot of unnecessary panic or heart-burn.
What causes the share prices to go up or down?
Stock markets are known for their volatility and frequent fluctuations in share prices. So, who are the top 3 culprits behind the stock market volatility?
1) May the force be with you!
The primary reason for stock market turbulence is market forces. The duet performance of demand and supply.
Stock prices change (move north or south) whenever the demand and supply equilibrium is disturbed. When demand increases (people want to invest in a specific stock) more than the supply, it causes the share price to go up. Because, people are willing to pay a premium price for the stock. Conversely, when there is an excess supply (i.e. demand is lesser than supply), the stock prices go down. Think of it as a clearance sale for unwanted products!
Let us look at how demand and supply get impacted by company related matters.
Changes in the company’s attributes impact its stock prices. Better sales revenue, reduced cost of production or operation, debt repayment, etc. lead to higher future cash flows for the company. Investors see such companies as lucrative investment prospects.
This leads to an increase in demand and resultantly stock prices move up. On the other hand, negative factors such as change or instability in top management, product failures, increase in the manufacturing or operational costs, sharp dip in the revenue, etc. erode investor’s trust in the company. This leads to a slump in demand and stock prices come crashing down.
Our country’s economic condition plays an important role in share price volatility. For instance, factors such as change in interest rates, inflation (or deflation), political turmoil, natural calamities or pandemics (the bingo word for 2020!), financial growth (or de-growth), major changes in macroeconomic policies, currency valuation, etc. have an impact on the stock market movements.
Let us look at some examples:
Inflation eats up your purchasing power and also your investing power. Let us see how. It leads to a swell in the pricing of offerings (goods and services). As a result, people curtail their buying and spending habits. This in turn leads to a fall in company’s product and revenue and hence brings down their stock prices.
RBI makes changes to Repo rates basis the overall economic conditions. If RBI increases the repo rate, borrowing from it becomes costlier for financial institutions. As a result, they increase their lending rates which makes loans etc. expensive for businesses. This leads to a temporary halt or sluggishness in their growth activities and investors start to sell-off their stocks in anticipation of the company’s de-growth.
Massive selling leads to stock price crash. On the other hand, if RBI decreases their lending rates, it leads to a situation of credit expansion. Perceived as a sign of growth, investors flock to get a chunk of the growth and drive up the stock prices.
Globalization has been a boon for all of us. But as they say to enjoy the rainbow you need to put up with a bit of rain. Global economic conditions have an impact on our stock markets as well. Indian market has witnessed a large inflow of foreign funds and investment. If there is an economic unrest in the foreign countries or change in their country’s foreign investment policies, we may see a sudden withdrawal of such funds from us. Similarly, if foreign stock markets enter a bear phase, investors might anticipate a cascading or ripple effect in India’s stock markets as well. Market sentiments (sometimes real and sometimes unfounded) carry the potential to cause massive volatility. All such factors will lead to a crash in the share prices.
Stock markets are volatile. Period. But that volatility is overwhelming only when you do not know how to interpret the cause of the turbulence. If you invest in a disciplined manner, you can capitalize on the volatility and optimize your returns.
All you need is solid understanding of the market workings, good stock selection and a robust (yet flexible) investment strategy. As a wise person once said, for the investor who knows what he (or she) is doing, volatility creates endless opportunities.
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When it comes to investing, risk tolerance is an important component to consider. Depending upon your risk taking ability, you can decide your asset allocation to reach your financial goals. When you invest according to your risk profile, you will be in a position to manage the swings in your investment performances effectively. When it comes to mutual fund investments, there are funds available to suit each type of investor with different financial goals, risk profile and time horizon.
Before you invest in a mutual fund scheme, you need to first consider a few points and to be clear about them.
1) What are your financial goals?
You may have many financial goals right from some short-term goals like buying a car, paying school fees to medium-term goals like buying a home, family vacation and long-term goals like retirement planning, children’s higher education and marriage. You need to plan separately for each goal.
2) How much do you need to save to reach your goals?
When your goals are clear, you can estimate how much you would need to save today to reach there after considering the inflation.
3) What is the time horizon you keep to achieve these goals?
Time horizon that you have to reach at your goals is an important consideration while investing. There are mutual funds that are particularly meant for short-duration and there are also funds for long-duration goals like retirement.
4) What is your risk taking ability?
Your willingness and ability to take risk defines your choice of investments ultimately. Your current age, number of dependents, annual income, amount that you have set aside as emergency fund, amount that you can invest monthly, liquidity requirement, your willingness to take risk and return expectation etc are some of the key factors that define your risk profile. Based on your risk taking ability, your asset allocation needs to be done. You can seek the help of financial experts to know your risk profile. Your risk profiling can be done with a simple questionnaire.
When you understand your savings requirement based on your financial goals, time horizon and risk profile, you can start knowing the suitability of each type of mutual fund with different risk-return characteristics as per your requirement.
Mutual Funds Sahi Hai but Are Your Financial Planning Sahi Too?
Selection of mutual funds as per your risk profile and asset allocation
You can choose the funds based on your risk profile and defined asset allocation for you across various asset classes like equity, debt, gold and real estate etc.
1) Aggressive/dynamic investor
You are an aggressive investor which means you are willing to take high risk in investments that have higher volatility. In such cases, you would also expect higher returns for maximising your wealth. Equity mutual fund category is the ideal choice for your risk profile. You can consider to invest in some small-cap and mid-cap equity funds that come with relatively higher risk and potential for higher return.
You can also consider some sector funds that invest in stocks of particular sectors. Mainly, you need to also consider the investment horizon to reach your goals. Equity mutual funds are well suited for capital appreciation and to achieve long-term goals. In case you have to invest for medium-term goals you can consider investing in equity-oriented balanced funds. You can also consider investing a portion of your money into debt funds keeping in mind your short-term goals and liquidity requirements.
2) Balanced investor
You are a balanced investor, which means you are willing to take medium risks while investing. You would prefer to invest in financial avenues that are not highly volatile. Medium-risk investors like you can consider to invest in equity mutual funds like bluechip funds or large-cap equity funds that invest in stocks of well-established companies for your long-term goals like for retirement corpus.
Though equity involves high risk, it can perform well over the long-run. You can also consider to invest in funds with a diversified equity portfolio. For your medium-term goals, you can consider investing in hybrid funds. As hybrid funds invest in both equity and debt in an almost equal proportion, this can very well suit your asset allocation preference and risk taking ability. You can also invest a part of your money into short-term debt funds for liquidity purposes.
3) Conservative investor
You are a conservative investor, which means you are a risk averse or an investor with low risk preference. While investing, you would prefer avenues that can offer your stability and income rather than capital appreciation and growth. You can consider investing in long-term debt funds for your long-term goals. You can consider retirement savings funds or pension funds. For regular income, you can consider investing in income funds. Credit risk funds can also be a good choice for your risk profile.
Defining asset allocation based on your risk profile is extremely important to successfully reach your financial goals. While selecting the best suitable mutual funds as per your risk profile, it is also important to consider your existing asset allocation and investments in other financial products.
When it comes to investing in mutual funds, there are two ways in which you can start your investment – Lump Sum or systematic investment plan. In case of lump sum investment, you invest your money in a scheme in one go. In the case of systematic investment plans, you make a fixed amount of investment at regular intervals for a particular period. Systematic investment plan is the best way to cultivate a regular savings habit in you.
Systematic investment plan is a tool to invest in mutual fund schemes regularly in a disciplined manner. Systematic investment plan allows you to invest a fixed amount of money every month on a date chosen by you into your preferred mutual fund scheme for a predefined period.
You can choose the convenient day for you to make payment at the time of buying mutual funds. Monthly investment amount will be directly debited from your account on the date chosen through ECS (Electronic Clearing System) facility. Typically for equity mutual fund investors, systematic investment plan is an effective tool to save for long-term financial goals.
When you choose a systematic investment plan as a tool to invest in mutual funds, your fund savings will be done through periodic instalments. Every month when the investment amount is paid, fund units are allocated based on that day’s prevailing net asset value of the scheme. Every instalment of SIP is considered as a fresh purchase. Many mutual fund houses allow monthly, fortnightly and bi-monthly instalments in SIP.
There are various types of SIP options with which you can customise. Following are the types available –
1) Top-up SIP
In this, you can enhance your SIP contribution during regular intervals. For example, you have started a SIP of INR 1,000 into a mutual fund scheme when you just started your career. Let’s say you have received a pay increment after your probationary period, you can increase your SIP amount to 1,500 under top-up SIP facility.
2) Flexible SIP
Flexible SIP allows you to change the SIP amount based on your financial position. If you receive a bonus you can divert the amount to your SIP account. In case of a cash crunch, you can even reduce your SIP amount.
3) Perpetual SIP
This is a systematic investment plan with no end date. If you have to stop them anytime, you need to give a written request. This is an ideal option for investors who need continuity in investment into the scheme.
What are the benefits of systematic investment plans?
Investing in mutual funds through SIP mode is a smart choice for a variety of reasons. There are various benefits offered by systematic investment plans. Following are the benefits of systematic investment plans –
1) Disciplined investment practice
Discipline is an essence of investing success. As a systematic investment plan allows you to invest regularly in periodic instalments as per your monthly savings capacity, it inculcates a regular savings habit in you. SIP is based on the principle of disciplined savings which helps you continuously save for your future goals without being impacted by market emotions.
Investing in a phased manner also helps you conveniently save on a regular basis.
2) Offers diversification
As investing through a systematic investment plan helps you buy units of mutual funds at different phases of the market, your risk in the investment gets diversified. SIP helps you reach your long-term goals by earning a good amount of return at reduced risk.
3) Rupee cost averaging
As you make periodic investments through systematic investment plans, you would be buying mutual fund units at different costs each month. You buy more units when the market falls and the NAV reduces. This brings down the average cost over the long-term. Rupee cost averaging of systematic investment plans helps you take the advantage of market volatility.
4) Power of compounding
Investing regularly in a disciplined manner through systematic investment plans over a longer period of time helps you magnify your investment by compounding effect. As the gains in your portfolio gets reinvested and the compounding growth will lead to wealth maximisation over the long-run.
Systematic investment plan routes of investing in mutual funds allow you to make even smaller amounts of savings on a regular basis. As low as INR 500 is allowed to invest in systematic investment plans. With this convenience offered by SIP, you can start investing at the early age of your life. Power of starting early helps you build significant wealth over the long-term.
As a systematic investment plan does not strain your daily finances, helps you do disciplined savings, minimizes risk with diversification and gives you advantage of market volatility, it would be a smart choice for your long-term mutual fund investments.
Mutual funds are one such investment avenue that is easy to understand and convenient to invest in. Buying a mutual fund in India is very simple and easy. With the evolution, the online process of buying mutual funds has become more popular in India which helps you invest in funds that you desire in no time effortlessly. With the good accessibility of mutual funds, there are multiple ways through which you can buy mutual funds.
Before understanding the buying process of mutual funds, it is important for you to have the checklist of documents ready. Following are the documents that you would require to start investing in mutual funds:
1) PAN card
2) Bank account
You require a bank account with net banking facility for online purchase
For offline purchase of mutual fund, a personalised cheque leaf (cancelled) with IFSC code, MICR code. You can also produce a bank passbook or bank account statement as proof.
3 ) KYC (Know Your Client) documents
KYC (Know Your Client) is a compulsory requirement by the regulator Securities and Exchange Board of India (SEBI) in order to prevent money laundering under Money Laundering Act, 2002. You need to have your KYC verified with the intermediaries registered with the Securities and Exchange Board of India (SEBI) before starting investing in mutual funds. This mandatory requirement of KYC verification by SEBI is a one time process.
KYC needs to be registered with KYC Registration Agencies (KRA). You can initiate registration with mutual fund distributors, mutual fund houses or directly through KYC Registration Agencies (KRA) online. Following are the KRAs in India registered with SEBI –
CDSL Ventures Limited (CVL)
NSDL Database Management Limited (NDML)
DotEx International Limited (DotEx)
CAMS Investor Services Private Limited
Karvy Data management Services limited
Mutual Funds Sahi Hai but Are Your Financial Planning Sahi Too?
For registration of KYC, you need to keep certain documents ready. Following are the documents required –
Proof of identity – PAN card/Driving license/ Passport/Voter ID/ Aadhaar card etc.
Proof of address – Passport/Ration card/Driving license/Bank account statement/lease agreement etc.
Passport size photograph
Enclose self-attested documents along with filled and signed KYC form. Your documents will be verified in person with the originals.
Step-by-step process for buying mutual funds
If your KYC is not registered, you can also get the eKYC done. You can do it through the online platform of KYC Registration Agencies (KRA) with a few simple steps –
Visit the website of KYC Registration Agencies (KRA)
Click on register for eKYC
Fill in the KYC form
Input your UIDAI number and mobile number
Input the OTP (One-time password) received on mobile to verify
Accept the terms and conditions and complete the process.
Once your KYC is registered or eKYC is done, you can start investing in mutual funds. You have two modes to buy mutual funds – online and offline. Online mode is the most preferred mode to buy mutual funds nowadays than the conventional offline method of buying mutual funds.
Once you decide in which fund to invest in, you can follow the simple process of buying mutual funds mentioned below –
Offline method for buying mutual funds
You can visit specific mutual fund house offices, branches of distributors or brokers to avail mutual fund forms. You can fill in the forms with complete details of investment type (Lumpsum/Systematic investment plan), mode of payment, bank details and holding type. Enclose the payment cheque/demand draft along with the signed form and submit it. You can submit the documents directly at the point of sale of registrars like Karvy or CAMS.
Online method for buying mutual funds
You can conveniently buy mutual funds online in no time through many platforms. Following are some of the ways to buy mutual funds online –
Through AMC (Asset Management Companies): You can visit the website of fund houses and start investing your desired choice of funds if your KYC is already verified. There are some fund houses that provide mobile applications for purchasing mutual funds.
Through Intermediaries: Intermediaries like banks and stockbroking companies offer you an online platform to invest in mutual funds. You can log in to their net banking facility or Demat account facility and follow the procedure of buying online.
Through online portals: There are many online portals and Fintech companies who are tied up with many AMCs. You can choose a fund of your choice and invest online through their portal.