1. What is a SIP in mutual funds, and how does it work?
A systematic investment plan is the type of investment vehicle that makes an investor invest a sum of money regularly into mutual funds. It is an approach that inculcates the habit of investing with discipline and facilitates the buying of units at various price points to average the cost factor over time. SIPs are instrumental in making wealth creation slow and steady, without being concerned about timing the markets. In particular, by investing in mutual funds through SIPs, one can leverage the power of compounding to achieve long-term financial goals.
2. What is NIFTY, and why is it important?
NIFTY, or the Nifty 50, is the benchmark index of the National Stock Exchange in India, consisting of the 50 largest and most liquid companies. It represents the market performance and, thereby, the economic health of the Indian stock market. Most investors and fund managers take this as a benchmark while measuring the performance of their portfolio. Since it is broadly diversified in the market, investment in NIFTY-linked index funds or ETFs is considered to be one of the most popular passive investment strategies.
3. What is Sensex, and why is it important?
Sensex, or the BSE Sensex, is the standard index of the Bombay Stock Exchange Limited, comprising 30 well-established and financially sound companies. It does indicate the general trend of the market and is an excellent indicator for the performance of the Indian stock market. Sensex is followed not only by investors but also by analysts and policymakers as a leading indicator for economic trends. Any investment in Sensex-based Index Funds or ETFs gives diversified exposure to top-performing companies in India.
4. How to Invest in NIFTY or Sensex?
You can simply invest in NIFTY or Sensex through index funds or ETFs that track the performance of the respective indices. These funds bring diversification and are more cost-effective and easy to handle compared to individual stocks. Index funds and ETFs are long-term investment instruments that provide wide market exposure and require minimal effort from investors. Moreover, this also sidelines the risks associated with individual stock selection, making them perfect for a passive investment strategy.
5. What are blue-chip stocks?
Blue-chip stocks are shares of companies that are well-established in financial terms and have built a reputable past record for steady performance. Most of them usually have big market capitalization, are very recognizable in their sectors, and rank among the market leaders in terms of competitiveness. Blue-chip stocks are considered to be low-risk investment opportunities due to the stability and continuity seen in their performance. The reason is that they mostly pay dividend yields regularly; hence, they are quite fitting for conservative investors seeking constant returns on investment and appreciation in value over time.
6. What is an ETF, and how does it differ from mutual funds?
An investment fund that is traded on a stock exchange like any other single stock is known as an Exchange-Traded Fund. Unlike mutual funds, which are purchased and sold at the end of the day’s trading, an ETF can be bought and sold at any time during the day at market prices. They usually have lower expense ratios and provide intraday trading flexibility. They provide diversified exposure to asset classes like equities, bonds, and commodities, thereby making them a cost-effective investment avenue for short- and long-term investors.
7. What is NAV in mutual funds?
Net Asset Value refers to the per-unit value of a mutual fund. It is the total value of the entity’s assets minus liabilities divided by outstanding shares. It is used primarily to measure the performance and value of mutual fund investments. It is computed at the close of each trading day and is the closing market price of securities underlying the respective funds. It helps an investor determine the value of mutual fund holdings and know how much their money has grown over some time.
8. What is a dividend, and how does it help investors?
A dividend refers to the portion of earnings that a company distributes to its shareholders, usually in the form of cash or additional shares. Dividends provide an income stream and enhance total returns on investments. This sort of stock will attract long-term investors who are after regular income along with capital appreciation. Reinvesting dividends through a dividend reinvestment plan could further compound returns, and it greatly contributes to the accumulation of wealth over time.
9. What are small-cap, mid-cap, and large-cap stocks?
Small-cap stocks are the stocks of those companies whose market capitalization is less than ₹5,000 crores.
Shares of medium-sized companies whose market capitalization ranges from ₹5,000 crores to ₹20,000 crores are known as mid-cap stocks.
Large-cap stocks are those of established companies with a market capitalization in excess of ₹20,000 crores. Each segment has a different risk and return profile.
Small-cap stocks have high growth potential, but one needs to take an increased amount of risk to achieve the same. On the other extreme, large-cap stocks provide stability with bang-on consistent returns while mid-cap stocks are a middle path balancing the characteristics of growth and stability.
10. How do I start investing for retirement?
Start investing for retirement through PPF, NPS, and EPF. Diversify into mutual funds, stocks, and bonds. SIP as a means of regular investment can be harnessed, and tax-advantaged accounts have to be used to maximize your savings. In fact, early and regular investing and the magic of compounding will ensure a financially secure retirement. Review regularly your retirement plan as also the quantum of contribution in the light of your changing financial goals and market conditions.
