This article is not on what stocks to buy for 1000 rupees. What I will be focusing on is, what are the things someone investing Rs.1000 or any other small amount in the Indian stock market should keep in mind. The Do’s and Don’ts.
Start small to make it Big
If you are starting to invest young, the share market is a great place to put your first Rs.1000 investment. As you are starting your personal finance journey with a small amount, concentrate on building a portfolio of great companies. Don’t get distracted with Penny stocks or the idea of day trading.
The first step is to pick a good stock broker who charges the least fees. Since you are starting small, every rupee matters, so you don’t want to be paying a lot in brokerage fees.
Then start to learn the ways to invest and selecting top scripts to buy. Once you know how, finally start investing. Next, maintain consistency. Month on month keep investing without taking a break. It does not matter if it is a bear market when cost is low, or a bull market when prices are high, make sure you put in that Rs.1000 bucks you committed to.
Here are some of the best ways and list of ideas to invest small amount in stock market.
Choose a great broker
All brokers allow you to invest any amount you want. Pick some good broker like Zerodha who charges you very little in terms of fees. An account with Zerodha will allow you to invest in Stocks, Mutual Funds, Gold, Commodities, IPOs, Bonds etc. And their fees works out to like 0.022% for Intraday and 0.1% for Delivery. This is one of the least fees in India at the moment.
Choosing a % fee broker means you pay a fee for what you buy. Eg: Say a broker like Sharekhan or Geojit charge you flat Rs.20 per trade, then irrespective of how much you trade for you need to pay 20 bucks. For Rs.1000, you pay Rs.20+taxes as fees. With Zerodha your fees is just Re.1 for Rs.1000 worth shares you buy.
How to buy shares for 1000
Now that you have got a great broker, next is to invest. Select some great shares that fall within budget.
Selecting stocks to invest in
Business, Management and History
Go for reputed companies that have strong management and business model. Spend some time looking at the business data and history of how the company has been run. Look at their financial reports, see if they have been paying dividends consistently. See how the company has been appreciating consistently or if there are a lot of ups and downs. Here are two examples.
One is Reliance, a company that has been stable in and Rs.1000 you invested in 2000 would have appreciated and over 20 years would be worth several lakhs of rupees, plus all the dividends they paid out. The other is a poorly run business, that is constantly manipulated by operators and rigged. Rs.1000 you invested in 2000 would be worth only a fraction of its value in 2020.
Pick from Nifty or Sensex baskets
If you are not that savvy on stocks, it is fine. Just pick stocks from the Nifty or Sensex basket. These are heavily regulated companies that are scrutinized and will be in the game longer. Your Rs.1000 can buy 1 share of Reliance or 7 shares of ONGC.
There are stocks grouped by themes such as Bank Nifty, IT, Oil and Gas, Telecom etc. Take your pick from what you feel is best and will give you high returns.
Investing for Dividends
With small amount of money it is not a great idea to expect a lot of dividend. So focus on quality stocks that appreciate in value. As your portfolio keeps growing and you have more money to invest, you can re-shuffle and bring more dividend stocks that will get you a stream of passive income.
Carrying out your first trade
Check out Zerodha’s Varsity where they cover a number of topics teaching you investing and trading. There is a lot of useful information which will teach you the basics you need to know to avoid risk and start investing.
How to invest monthly in stocks
Cost averaging with stocks
If you can keep buying stocks every month, you go through cost averaging, so you never have to worry about the cost of the stock. Eg: 1 month you may buy the stock for Rs.120, another month at Rs.80. Overall you average out to Rs.100.
Setting monthly investments
Have a disciplined approach towards investing. Set aside a portion of your income every month and don’t miss out or make any excuses.
Think deep about it, you may not get any great returns at onces, but the discipline you set up and follow now will be the difference between how rich or poor you are when you are 60 years old.
Things to avoid when investing small amount in stocks
Avoid buying Penny stocks
Don’t ever fall for Penny Stocks (stocks that are very cheap and not-reputed companies). These may look cheap. Eg: A stock costing 30 paisas may look attractive to you as you are investing Rs.1000, that means you get 3300 stocks. But DON’T DO IT! These stocks are heavily manipulated and in most cases the underlying companies are bogus, on the verge of bankruptcy or heavily in debt with bleak chances of recovery.
Trading with 1000 rupees
There are a bunch of sure shot, easy ways how you can trade with Rs.1000 and lose the money. You are starting out small, and you are smart. For your own good, don’t get excited and involve in:
- Day Trading/Intra-day trading
- Swing Trading
- Short term investing
- Technical Analysis Investing
- Following what some big investor does
- Futures and Options trading
I am not saying people who trade in these ways lose money. What I am trying to say is, people who trade in these areas and make money are veteran investors. They have been in this for long, they have tried and tested strategies and most importantly a lot more money than you.
You are starting small, so don’t try your luck with these methods. You are in this for the long term, don’t let the stock market get you into thinking you can get rich over night by trading. It just does not happen that way. Invest small, keep buying stocks and over a period time, watch your wealth appreciate.
Stocks under Rs.100 vs higher price shares
It is not the cheapest stock that wins. Since you are investing small, you may want to go for stocks that are at Rs.20 or Rs.30 range. In truth it does not matter. The growth between small cap stocks and mid cap stocks are proportional. So instead of looking at how many shares you get, look at the company and how good it’s business is
Avoid falling for recommendations by brokers. Most big brokerage houses try to get you to trade as much as you can. I have faced this with Geojit, Karvy and Sharekhan. They have investor outreach programs, give out recommendations (mostly useless) and keep motivating you to trade. Remember, the more you trade, the more fees they earn, so it is not in your best interest.
Few questions on investing small amount in stocks
Yes you can. The limit on how much you can incest is purely on your financial situation and there are no other restrictions.
There is no minimum amount to invest in stocks. Most brokers allow you to deposit Rs.1 or more into your account with them. Once you have added the money, you can buy a stock starting at 5 paisas
Investing a certain sum every month is better. To be clear, investing of any form and type is good. But, if you invest a certain sum every month, then you gain an advantage through cost averaging.