Monday, August 29, 2011

How to invest money? What small investors can do with their money?

Your money is always at a risk of getting spend on trash or eaten way by inflation. Investing your hard earned money is one way to protect it from its risks. These days with online investing made simple and economical, small investors have started to participate more and more.

These small investors do not come to market with lots of money but their contribution to market capitalization is outstanding. These days you can even start investing in shares with as low fund as $25. Not long time back investors required to have good initial fund to enter into the investment market. But in todays market one can invest in mutual funds with as low fund as $10. Lets see how small investors can use their limited funds effectively for investing:

As far as posssible one should invest in shares directly

Lets take example of today, banking sector is comparitively undervalued. An investor has option of investing in baning sector though sectoral mutual funds. But these mutual funds do charge you lot of extra fees. If investors do not want to pay these huge fees, they have the option of investing directly in shares. The direct purchase of shares can be done both through online trading agents (by paying nominal brokerage) or one can buy shares directly from the company where there is not brokerage involved. But it must be noted that not many company allows you to buy share directly from them.
But for investing directly in shares one must know how to analyze shares.

If you do not have time to learn analyzing shares, invest in mutual funds through SIP route

Syatematic Investment Plans (SIP’s) are like a blessing for small investors. People who do not have lot of fund can invest in equity on monthly basis through SIP route. Systematic Investment Plan allows small time investors to even invest money as low as $10 per month. As on today diversified equity fund SIP’s are the most popular among small investors. SIP route of investing in equity linked mutual funds will give advantages to small investors like dollar cost averaging which has other benefits like compounding of money in times to come. SIP Mutual Funds are perfect for those investors who have a long term investing horizon or even for those investors who has short term goals. For short term investors dividend option of mutual fund will be a great alternative. Yearly (or even quarterly) investors will get the dividends earnings in their pocket.

A new investment vehicle called as Exchange Traded Fund (ETF’s) is great for long term small investors

ETF is a financial instrument that small investors has loved from their core. Particularly index ETF have proved to be an instant hit with small investors. Exchange Traded funds (ETF’s) combines the advantages of shares and mutual funds. Investing in ETF gives advantage of direct investing like shares and also allows excellent investment diversification opportunity. Exchange Traded Funds is perfect that let how the maket behave they will always give average market returns to investors.
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