Stock market investment can generate good return over fixed yielding instruments like bonds or fixed deposits, however one should be careful about some points before investing in stock market so that he or she can get good returns. Given below are some of the points or precautions one should take before investing in the stock market –
1. One should invest only certain percentage of his or her wealth in equity markets, because in equity market nothing is certain and one should invest only that much amount which one can afford to lose or in other words the amount if get lost does not affect the investor.
2. One should never invest on the basis of any rumor or so called tips which the broker gives, rather one should carefully look into the fundamentals of the company like the past 5 year profits, business of the company, promoter of the company etc…., before investing in any company.
3. One should also check that he or she receives the contract notes for all the transactions done by the investor as some broker tend to manipulate these transaction and do trading on their own in the account of the investor, and if the investor look into contract note he or she will know about such trading.
4. One should make sure that the broker or intermediary with which investor is dealing should be registered broker with stock exchanges, which will ensure that investor is not cheated by someone who is unregistered and fraudulent.
5. One should never invest in equity markets by taking loan or debt as it will lead to big trouble in the equity markets does not go according to the investor perception. In other words one should never trade in equity market by taking leverage.