Investing is the practice of allocating money with the goal of generating returns over time. This can be done through various channels, such as financial products, stocks, real estate, or by funding the development of a business. Below are some common questions about investing, along with detailed answers.
Q. What is a company's 'market cap'?
Market capitalization (market cap) refers to the total value of a company's outstanding shares of stock. It is calculated by multiplying the current price of a share by the total number of shares in circulation. For instance, if a company has 20 million shares and the stock price is $50, its market cap would be $1 billion (20 million shares × $50 per share). Market cap is a key indicator used by investors to assess the size and potential growth of a company, with companies typically classified into small-cap, mid-cap, and large-cap based on their market capitalization.
Read More: How to Open a Trading and Demat Account with Zerodha
Q. Should I be investing in stocks on a daily basis?
Investing daily is not necessary, and in many cases, it may not be advisable for most investors. It's more important to invest strategically, particularly during market corrections or when you identify good investment opportunities in stocks you're watching. A disciplined, long-term approach to investing, based on solid research and market trends, is often more effective than trying to time the market.
Q. When is the best time for beginners to invest in the stock market?
The best time to invest is now. In fact, as of today (July 9), the Sensex closed at 38,730—more than 1,500 points lower than its all-time high. This provides a potential opportunity for investors to buy stocks at a relative discount. If your portfolio is down by a small percentage (1–1.5%), you might consider this a good time to add quality stocks to your holdings. Remember: the best-performing stocks are often the ones you already own, and market dips can offer opportunities to buy more at lower prices.
Q. Should I invest in small-cap mutual funds now that large-cap funds are high?
No, not necessarily. Large-cap funds tend to be more stable, and if they are at a high, it’s because they've performed well. They could continue to do well in the future. Small-cap and mid-cap funds, on the other hand, may be at their lows, which could present an opportunity to invest in promising companies at a lower price. However, investing in small-cap funds should be approached cautiously and based on the specific sector or theme you believe will perform well in the future.
Q. Is it a good idea for young students to invest in the stock market?
Yes, but education comes first. I personally began investing in stocks during my first year of engineering. I started small with ₹3,000, but initially lost a portion of it due to brokerage fees. Over time, I learned from my experiences and made more informed decisions. Starting with a discount broker like Zerodha helped me minimize costs and boost my net profits. Students should first gain a solid understanding of the stock market and begin with small, manageable investments. Learning about trading and investing early on can lead to long-term financial benefits.
Read More: 5 Ways To Start Investing With Low Capital in India
Q. Should I focus only on mutual funds, or should I invest in stocks too for the long term?
It's important to diversify your investments. A balanced portfolio that includes a mix of asset classes—such as equities, fixed deposits, bonds, and mutual funds—helps manage risk and maximize potential returns. While mutual funds are a safer, more passive investment vehicle, individual stocks can offer higher growth potential but also come with more risk. A diversified approach allows you to weather market volatility and take advantage of different investment opportunities.
Q. Should I invest in myself first or in the stock market when starting out?
Both are valuable investments, but investing in yourself should be the priority. Learning new skills, expanding your knowledge, and improving your personal development will pay off in the long run. At the same time, starting early in the stock market can help you build wealth over time. I recommend you don't focus solely on one or the other. Allocate part of your earnings or savings to financial investments—such as stocks, mutual funds, Fixed Deposits (FDs), Public Provident Fund (PPF), or National Pension System (NPS)—while also investing in acquiring skills that will serve you well throughout your career.
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