Stock Market from a beginners point of view

Hi all I am back with my second post as promised, today i am going to get all technical with you, I was thinking the other day, I am 22 all grown up,need to do something that grown up's do, so decided why don't i do some research in Stock Market after all i have been earning now and have stashed away some money for the rainy days, but now it seems these are sunny days and have enough for now, so now is the time to experiment. I have been doing some research now and have been able to understand a few terminologies.I will give some basic definitions and how to actually invest in stock market. Everyone says it's not good to for a beginner to invest in stock market, as it has a lot of nuances which can be understood and mastered only by experience, in short u will lose a lot of money before you start gaining.As I was in middle of writing this post i had an opportunity to interact with Aegon Religare relationship Manger Mr Sri Ganesh.He gave me details about the nuances of the stock market and which according to him would be an ideal way for someone to start with.


There are three ways u can get yourself involved in a stock Market.

1)Stock Trading
2)Mutual Funds
3)ULIP- Unit Linked Insurance Policies

So which mode to choose,from the research i have done through Internet and speaking to the concerned people i have come to the following conclusions.

Method of Investment --------- Returns ---------------- Risk

Stock Trading --------------------High ---------------Extremely High
Mutual Funds ----------------- Moderate ------------------Low
ULIP ----------------------------High ---------------Extremely Low

So why do i think ULIP has high returns and low risk this is because the way you money is handled. The way a ULIP works is something is like this, say u invest 100 Rs today in a ULIP, 10% goes towards your insurance premium as is mandatory by law and the remaining 90Rs is invested in the stock portfolio that the company offering ULIP thinks would give the maximum gain. So how is this different from mutual funds well everything is fine as long as stock market is on a upward rally the returns on your stock portfolio keeps on increasing but what happens once the stock market enters the negative phase,in mutual funds u have an option of exciting the stock market and wait till the market bottom's out and reinvest money in the stocks again once u see an upward trend,but this is a very costly procedure and cannot be done often or weather the storm and accept lower returns on your investment or even sustain losses, so this would be a like a dampened sine wave with ups and downs finally settling on a moderate return. Now how is ULIP different from this, well in case of ULIP u have two options(or several more depending on the issuer) either u can invest the 90% of your investment in stocks or do a fixed deposit, the way it works is say u have bought 100 units of ULIP share when stock market is 10000 and say after a year the market is looming at 20000 points u will be getting a very high return on your investment say 20% per month,now it so happens that the market starts falling down ,you can immediately shift the gains you had made to fixed deposit where the market wont effect your investment+gains and you will be getting a moderate return of 10% per annum. In this way u can whether the storm in the stock market and reinvest when u see a boom in the market. For further details regarding tax evasion on you gains read the following article http://www.rediff.com/money/2005/oct/15perfin.htm. Guys after having matured in investments I feel ULIPS is not the best way to invest. I will post more about my learnings in my next blog post