Investing Small Amounts in Stocks is a bad idea – PrognoAdvisor

Investing Small Amounts in Stocks is a bad idea

Investing in stocks, directly, carries huge risk. When Satyam Computers scam broke out the stock price came down to 10% of the value on the previous day! So if one has invested only in Satyam almost all her money would have been wiped off. There is lot of research involved in selecting the stock. Unless you are not good at researching and monitoring daily, you should not invest in stocks directly.

In order to invest directly in stocks, you need to open a trading account and DP account with a stock broker. The DP account has annual charges which can be about Rs.400 to Rs.600 per year. Apart from that there will be brokerage charges of 0.3 to 0.5% of the value of purchase or sales. There will be service tax on the brokerage and security transaction tax. Therefore if you invest Rs.25000, in stocks the cost will be minimum 2%of the investment value. For Rs.1 lac the cost could be about 0.8%. So opening a trading account to start investing in stocks with small amounts is not a good idea.

It is better to start investing through equity mutual funds.

Sanjeev Kumar Gopalakrishnan

Sanjeev Kumar G, an IBS Chennai Alumni, is a Certified Financial Planner (CFP) from India, since 2005. He has 22 years of experience and is an expert in various personal finance areas like portfolio construction, investment research, life insurance and financial planning.

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