The nuts and bolts of how investing works

Get familiarised with the different accounts you need to open to achieve your goals and websites that can guide you along the path.Opening your Money Diaries was just the first step towards getting control on your finances. Among the next steps that follow is to get started on investing. This is your hard earned money after all and it must work hard to get a good rate of return for you.

Before starting off on this front, you must have financial goals. Just like you have a target weight, which you want to achieve for good health, you should also have an ideal number that you would like to achieve at a certain point of time in your life. Needless to say, this also depends on where you are in life in terms of age, commitments to family and career.

The needs of a 25-year old starting off his career are very different from those of a married couple about to have kids.

The most basic tip is summarized in two words - start young. But it’s also never too late. You could get a financial advisor who could help you draw up a financial objectives plan, or you could do it yourself. It’s a fairly straightforward procedure of estimating expenses and income and targeting a desired pot of gold (corpus) for your retirement years.

While each individual financial plan will be different from another, some basics will hold true such as assuming inflation rates for projecting expenses and a basic number for your monthly retirement expenses.

Before all of this, it helps to get yourself familiarized with how investing works and what are the various accounts you need to open before you jump into the world of investing. Of course, you could simply ask your financial advisor to set this up for you. But it’s your money and it helps if you’re aware of what you are doing and how you go about doing it.

Open an online trading account
In order to buy and sell shares, bonds, etc. you need an online trading account with a stock broker. There are many brokers in India and some of the popular ones include Sharekhan, IndiaInfoline, Kotak Securities, HDFC Securities, ICICI Securities. Call them up, talk to their representatives, understand the commission and fees structure and choose accordingly.

Open a demat account
Just like you need a bank account to hold your money, you need a dematerialized (“demat”) account to hold your shares and bonds. Demat accounts are offered by “Depository Participants” (DP) which include banks. See the DP pages of HDFC Bank and ICICI Bank.

You could also open a 3-in-1 account which links your bank account, online trading account and demat account with one broker/bank. The benefit of such an account is that you deal with one single entity for opening the suite of services. See the websites of Kotak Securities, HDFC Securities (which offers a “4-in-1 account” adding an investment account) and ICICI Securities that offer these 3-in-1 accounts.

Open a mutual fund account
You can directly invest in mutual funds, or you could find a financial advisor/agent to help you with the paper work. The advantage of investing directly is mainly that you save on fees paid to advisors/agents.

However, you would have to visit the office of the mutual fund to submit your forms and documents.The advantage of investing via an advisor/agent is the service they offer in terms of advice, home delivery/pick-up of documents, etc.

In case you decide to invest directly, first check out the direct investing pages of Reliance Mutual Fund, HDFC Mutual Fund and ICICI Prudential Mutual Fund. You will have to fill up an application form and provide documents. You will have to submit all of this to the Investor Service Centres of the Fund in order to get started.

Track your portfolio
You can track the value of your portfolio on sites like Google Finance as well as specialized portals such as MoneyControl. This will give you an idea of how your portfolio performs versus the broader markets. Pick a time-frame over which you’d check your portfolio. For example:

You could check it once in a week over three to six months. But don’t get obsessed with daily returns unless you are day trader. Portfolios take a lot of time – at times many years as well – to show a good, solid return.

Research
For researching mutual funds you can check out ValueResearch and MorningStar. Both sites track mutual fund scheme performance across asset classes and are very comprehensive in their research. You can also maintain your portfolio on these sites.