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how can i start investing with little money

Capital markets have gained widespread acceptability in India. Previously, the capital market was considered a domain of high-net-worth investors and financial institutions. However, the capital market has become equally popular among small investors today. Electronic trading and the growing reach of technology has contributed immensely to increasing the acceptability of the stock markets. Many investors, however, are still wary of entering the stock market due to certain misconceptions like the need to have significant funds to start investing. On the contrary, you do not need high capital to start investing in the stock market. You can start with little money by using web-based and mobile-based trading platforms.

1. Have a clear investment goal

Any investment amount, big or small, must be directed towards achieving a financial goal. The goal is important as it decides the type, tenure and medium of investment. When you enter the stock market, it is advisable to invest long-term. The chances of you making losses in long term investments are lesser when compared to short term investments, and you can always adjust your positions. Hence, it is always wise to set a goal, have a long-term horizon, and regularly make small investments.

2. Make up for missed contributions

Investing small amounts regularly is equally efficient as investing a lump-sum amount at once. The key is to be consistent and keep on investing at regular intervals. If an urgent situation arises and you miss an investment, make up for the missed amount by doubling the contribution on the next interval. Making up for missed investments will keep your financial goal on track and allow investment discipline in the long run.

3. Controlling emotions

Emotions are a key factor that highly influences an investor’s investing decisions. The chances of making the wrong investment decision increase when investors let their emotions dictate their investing decisions. Hence, it is wise to control your emotions while investing. As losses are a part of long term investing, you should not stop investing as soon as you realise some losses. Knowing that you have invested in good stocks, you should wait, not sell your current positions, and keep investing further.

4. Take risk tolerance into consideration

Before investing your money, it is important to analyse your risk tolerance. Risk tolerance depends on your perception of the risk as well as the understanding of your tolerance level. If you are risk-averse, invest only in blue-chip stocks, which are generally considered to be relatively safe. If your risk appetite is high, you can invest in volatile stocks.

5. Focus on the basics

Successful investments require a deep understanding of the stock markets. Only after knowing the nature of the stock market and analysing individual stocks, can you invest successfully. Knowing the basics is the first step towards making informed investment decisions. Having relevant knowledge will also help you understand the actual risks associated with an investment and ensure your investments are protected.

6. Diversify

Diversification is one of the best strategies to mitigate the risks of your investments. When you divide your investments across categories, you also divide the risks associated with the investments. In the case of stock markets, you should diversify your risks across various sectors by allocating a portion of your capital to stocks of specific sectors and investing accordingly.

With diversification, you will not have to worry if a particular stock underperforms. However, diversification should not lead to a bloated portfolio. It is wise to keep a limited number of stocks in your portfolio, as monitoring a large number of stocks can be difficult and won’t let you achieve diversification goals.

7. Be realistic

Not every investment has the potential to give you double-digit returns. You have to understand that consistent returns require discipline, patience and deep knowledge. Being realistic is a key tool to be successful in the stock markets. Over expectation can lead to wrong investment decisions and can force you to realise losses.

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