Avoid ‘get-rich-quick’ approach and be a long-term investor

It is unfortunate that despite so many initiatives carried out by the , the financial market regulator, and other stakeholders, some naïve investors fall for the claims. Such occurrences can drastically impact investors’ confidence in the financial markets.

Investors must get two aspects right while in the markets. Firstly, stocks do not guarantee returns. No money manager can guarantee returns on stocks. The financials of a company are never steady and sometimes businesses fail. Stock prices react to such things and broad macroeconomic variables. So, be reasonable. In the long term, stock prices follow the earnings growth of companies. A well-managed portfolio of large-cap stocks may offer around 12% returns in the long term. But again, this is not a guarantee.

The second thing about investing is selecting the right entities to manage one’s money. Investing in stocks is a specialised skill. Hence, one must select regulated investment vehicles such as mutual funds, portfolio management services, and alternate investment funds to invest. These investment vehicles are registered with the Securities and Exchange Board of India. They carry within them the potential to create wealth for their clients in the long term. This is reflected in the performance of these vehicles. For example, in the past ten years ending March 17, 2024, large-cap and flexi-cap funds have given 14.10% and 15.8% returns on average, respectively, according to Value Research data.

Stay away from people and organisations who are not registered with regulators or who do not comply with the norms set by regulators. A stock broker can offer equity research, but without a mutual fund license or portfolio management service license, the broker cannot manage money. An authorised person with a stock broker can act as a facilitator for executing trades, but he cannot be entrusted with managing money. The financial market regulator has taken proactive steps to protect investors’ interests and has guided regulated entities. The regulator also audits the performance and processes of regulated entities and lapses are dealt with stern actions. Investors can also approach the regulators for redressals of their complaints. But this is not possible with unregulated investment vehicles. Hence, it is crucial to invest with regulated investment entities.

There are a few things investors must follow for a smooth journey in the markets. Always seed mobile numbers and email IDs to broking and Demat accounts. This ensures that transaction alerts reach the investor concerned and the investors can keep track of transactions carried out in their accounts. Investors should never allow others to transact in their accounts. Sometimes such accounts are used to carry out fraudulent activities or as ‘mule’ accounts in front-running cases.

Investors should also check the websites and mobile applications before transacting on them. There are instances of look-alike websites or mobile apps fleecing the investors of their money. Always download a mobile app from the Play Store and not from any link shared on social media. In case of doubt, it is better to call up the stockbroker and confirm if you are using the authorised mobile app or the web portal.

Investors must bear in mind; that to gain in the long term they must invest in stocks consistently. First-time investors, especially, should avoid investing large sums of money in one go. Any scheme or hack that claims to make multi-fold returns in stock markets in the short term, is too good to be true.

Hence, be an investor and let equities create a significant amount of wealth in the long term. A large corpus thus built can help one achieve long-term financial goals such as retirement.

(The author is the CEO of Choice Equity Broking and a board member of its listed parent company Choice International)