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Do's and Don'ts While Trading in Stock Market

The BSE has mentioned certain Do's and Dont in general for investors to follow while dealing in the stock market as there are attendant risks associated with it.

Do's

  • Always deal with the market intermediaries registered with Sebi/Exchanges.
  • Give clear and unambiguous instructions to your broker/agent/depository participant.
  • Always insist on contract notes from your Broker. In case of doubt of the transactions, verify the genuineness of the same on the Exchange website.
  • Always settle the dues through the normal banking channels with the market intermediaries.
  • Before placing an order with the market intermediaries please check about the credentials of the companies, its management, its fundamentals and recent announcements made by them and various other disclosures made under various Regulations. The sources of information are the websites of Exchanges and companies, databases of data vendor, business magazines etc.
  • Adopt trading/investment strategies commensurate with your risk bearing capacity as all investments carry risk, the degree of which varies according to the investment strategy adopted.
  • Carry out due-diligence before registering as client with any intermediary. Further, the investors are requested to carefully read and understand the contents stated in the Risk Disclosure Document, which forms part of investor registration requirement for dealing through brokers in Stock Market.
  • Be cautious about stocks, which show a sudden spurt in price or trading activity, especially low price stocks.
  • Be informed that there are no guaranteed returns on investment in stock markets.

Don'ts

  • Don't deal with unregistered brokers/sub-brokers, intermediaries.
  • Don't fall prey to promises of guaranteed returns.
  • Don't get misled by companies showing approvals/registrations from government agencies as the approvals could be for certain other purposes and not for the securities you are buying.
  • Don't leave the custody of your Demat Transaction slip book in the hands of any intermediary.
  • Don't get carried away with onslaught of advertisements about the financial performance of companies in print and electronic media.
  • Don't blindly follow media reports on corporate developments, as they could be misleading.
  • Don't blindly imitate investment decisions of others who may have profited from their investment decisions.

Most equity investors ask themselves at one time or another, "What do I do now?" This question is understandable, especially if you look at the fluctuation within the stock market we watch excitedly as the stock rises in value, we wait nervously, and see the market take a dive.

There are a number of Dos and Don'ts for the stock market investor, and here we will give a few.

What you must NOT do

Don't Panic

You have to appreciate that the share market will fluctuate, that is the nature of it, and the reason why you invest. If you see the price of your shares drop dramatically, check out the company, and if nothing has changed, hang in there. The same applies to your mutual fund. If the net asset value fluctuates, don't sell in a hurry, watch them, but don't panic.

Don't make huge investments

Everyone is aware of the fact, that buying shares when the market has reached its lowest is good practice, and selling them is more profitable when the market is at its highest. In theory this is great, however, timing the market is not possible.

So don't make huge investments, study the market, find a few companies that you believe in and buy a few shares. Keep money aside so that when the market dips you are able to buy a few more. Buy your shares as and when the market dips, build your share stock gradually, so as to spread your costs.

The same applies to your mutual fund, have a systematic plan, invest a specific amount each month to get your units allocated.

Don't chase performance

Because a stock price is rising dramatically, it does not always follow that, that stock is a good buy. Once investors begin to sell, the price will drop considerably.

With your mutual fund, if you see a good return in the current Bull Run, does not make it a good fund. You must track the performance through the bull and bear market and only then are you in a position to decide.

Don't ignore expenses

If you are buying and selling shares you are subject to brokerage fees and the Securities Transaction Tax. You need to be aware of this and budget for them, especially if you are selling for small gains. E.g. If you're selling your shares with only a gain of a few rupees, your profits will be minimal after the fees and taxes have been accounted for.

With the mutual funds, you will find that you pay an entry load (when you buy units) or an exit load (when you sell units). If you have paid an entry load, you may not have to pay the exit load. These 'loads' are fees that are calculated on the Net Asset Value (cost per unit of the fund).

It is worth bearing in mind, that if you sell your equity shares within a year you are liable to short-term capital gains tax of 10%. If you decide to sell, more than a year after purchasing, you are not subject to tax as long term capital gains tax is nil.

What you MUST do

Get rid of the Junk

Are there shares that you no longer wish to keep for any reason? Maybe you have had them for a while and whilst they are giving some return, you no longer believe in them. You could consider selling them and re-investing your money elsewhere.

The same principle with your mutual funds could be applied. You could sell the units and with the money, purchase a more profitable investment.

Diversify

As the saying goes, 'Don't put all your eggs in one basket' a sound piece of advice and one that fits investments perfectly. Spread your investments over various sectors. Investing in stocks and shares is only one avenue; you could look at equity funds as well. Consider putting a portion of your money into fixed income funds, such as Post Office Deposits, Bonds, National Savings Certificates or the Public Provident Fund.

If you have little or no investments in these, you may want to think about a balanced or debt fund.

Believe in your investment

When investing you must only invest in stocks that you believe in, knowledge of these stocks only comes from analyzing the company and studying the fundamentals yourself. Whatever you do, never invest in anything based upon a received stock market tips, no matter who gave it to you.

If, however, you have seen how a fund manager manages his funds and you are happy with the objective of that fund, you might well consider investing in it.

Stick to your Strategy

Before you start investing, have it clear in your mind, how much of your capital you are prepared to put into equity investments. If you decided at the start to only invest 60% in equity, do not be tempted to exceed this limit. Stick with your Strategy.

Learn and Understand Stock Market

Search for best stock market institute to understand the basics of stock market after that you can do Technical Analysis course and Fundamental Analysis course, So that you can yourself predict the market and create your own research calls in equity and commodity.

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