Basic rules of Investing

Know the Rules

Do you think that you are far behind many in the process of Investing?

First you need to have 2 things to be in place before starting with the investment process.

  1. Security plan ( term insurance,health insurance)
  2. Emergency fund

Don’t merge these two things with Investments. These are not Investments.

Even if you have health insurance from your employer, it’s always better to have one on own. As you can’t take your employer health insurance to be granted. It will be terminated once you leave the job.

Emergency fund, it’s basically a fund of 6-12 months of basic expenses you have. For example house rent, food , any emis you pay. It is good to have emergency fund than before Investing. We can’t predict the future. Anything can happen like covid 19.

Note: SIP’s don’t come under basic expenses.

If you don’t have these two plans firmly in place don’t start investing. It’s very risky. Don’t go further for Investing rules. Comeback later.

Do you have security and emergency fund in place? So welcome to “Investing” club mate.

Let’s dive into the basic rules of Investing then

Rule 1

Always know what type of income that you are earning.

There are 3 types of incomes

  • Income from paycheck
  • Portfolio income
  • Passive income

Income from paycheck is most commonly earned income, it’s highest taxed income. So it’s very hard to become rich from this income alone.

Portfolio income, generally derived from stocks, mutual funds,bonds or any paper assets

Passive income, it’s generally derived from real estates, royalties, patents. There are many tax benefits available on this type of income.

Try to have combination of incomes, as passive income and portfolio income classes saves you the most valuable asset for you. That’s “time

Rule 2

To convert the income from paycheck to passive / portfolio income.

Many have only one question as what if I loose all the money ?

What if I can’t afford to buy real estate property?

There are always what if’s in life. There is always risk to loose.

But only then we have option to win when there is option to loose.

Not taking any risk is the biggest risk

Mark zuckerberg

Rule 3

Buy secured security to turn your paycheck income to portfolio/passive income.

What’s the security? Security can be any stocks or real estate property or bonds or any that can generate income.

Securities can be assets or liabilities. To know more on assets/liabilities visit : Assets

If a security generates income then it’s an asset or else it’s an liability. Thats why we have SEBI (Securities and Exchange Board of India) but not Assets and Exchange board of India.

Sane security can be asset and also liability.

Example: If I buy 10 shares of a stock for 100$ and then sell 5 shares for 150$ and then again in the next month sold remaining shares for just 50$. Due to pandemic. So here you can observe in the 1st transaction I made profit of 50$ per share then it’s a Asset. In the next transaction I get loss of 50$ per share. So it’s became liability.

Rule 4

Investor being asset or liability.

Wait what ? Is it not the security being asset or liability?

Yeah you have read it correct. It’s always Investor being risky factor in Investing.

The Investing process becomes risky when Investors don’t understand the security being asset or liability.

Be greedy when others are fearful

Warren Buffett

A true Investor always can validate the security to know the real value of the security. If it’s a valid security with cheap prices grab the opportunity.

Rule 5

True Investor always be prepared for whatever happens in the market.

Even it’s bull market or it’s bear market. And grabs the opportunity at right time.

But how to know the right time?

It always comes with experience same like chess. There’s always opportunities available.

But don’t hang on to the single opportunity that you had missed. Because you will miss the current opportunities.

Main takeaway is Don’t predict and miss the opportunities that you have right now with negitive vibes.

Rule 6

Good deals attracts money always.

What if you have opportunity but no money to seal the deal?

Validate the deal, if rewards are higher invest in by borrowing or be a mediator to some other Investor and get the partnership in the deal.

If rewards are not that great to invest by borrowing, then it’s not a great deal at all.

So that’s all the rules about.

Main takeaways from the rules are

Don’t rush to invest, validate the deal. You are not in race to win. Generating wealth is not a competition. Slow and steady always wins.

Source: Rich Dad’s guide to investment.

A Beginner Guide to Mutual funds

Mutual funds, so you are have heard it somewhere or someone told you to invest in that. But you have many questions regarding it. But don’t know whom to approach for clarification?

Mutual funds

Before going to know about mutual funds, have look at The art of Financial planning

Come on lets clear basic doubts we have regarding the mutual funds like

  • What are mutual funds?
  • Where to start investing?
  • How to invest ?
  • How will mutual funds make money ?
  • Are they safe to invest my hard earned money ?
  • Are they better than Fixed deposit?
  • Are the better than Gold ?

To put in a simple way, if I want to go from Hyderabad to Vijayawada. Assume I have my own car. Even though I have two choices

  • Go on my own by driving,  (or)
  • Hire any professional driver to drive for me.

In the 1st option that is driving on my own gives me freedom to choose my own path, can drive on speed I like to and many other benefits I get from it.

In the second option, I am not keen on driving , so let my driver take all the decisions for me and make me reach as soon as possible the destination being safe.

So in the second option you have time to use it for yourself. As you are not driving.

So basically that’s the difference between stock market and the mutual funds.

In the stock market you take all the decisions , where to invest, when to invest in particular stock… so on.

In the mutual funds, you are not bothered to research about the stocks , you hire a professional to do this job for you.

In simpler words, there is a mutual fund Manager  who takes decisions for you to invest your money to generate wealth for you.

How mutual funds work?

It will collect money from people like you and me, assume that there’s a pool of 100 people. These 100 people contribute a sum of amount to mutual fund. So mutual fund re-invests money in stocks / debts to generate wealth.

Concept of mutual funds

What is the positive side of mutual fund?

Mutual fund invested money can generate income on that. It can be interest or dividend on the invested amount or it can be gain ( difference between buying price and selling price).

So the gained income will be distributed among the pool of people who contributed to the mutual fund.

But will they distribute complete gains they earned?

No”, they are going to takeout some gains let’s say it’s a x%. And this x% is called the management expenses or expense ratio.

Expense ratio can be typically 1% – 3% of your invested amount.

Types of mutual funds

Earlier there used to be many funds but with no classification. So many investors got confused about the funds.The asset allocation and the overall risk profile of the fund did not follow the investment mandate. So SEBI classified funds into 5 main categories. So what are they ?

  • Equity funds
  • Debt funds
  • Hybrid funds
  • Solution oriented funds
  • Other funds

Equity funds

So basically equity mutual funds, invests in stock market. The fund you choose will be Investing in specific stocks or sectors with a certain %. With time this percentage varies as fund manger is going to trade behalf of yourself. As the money is invested in stock market, the risk ratio is higher side.

So the funds returns may vary with the fluctuations of the stock market. But most of the time fund manager tries to beat market and be alpha to generate more returns.

There are 10 sub categories in equity funds like following

  1. large cap funds,
  2. mid cap funds,
  3. small cap funds,
  4. multi cap funds,
  5. large cap & mid cap funds,
  6. focused funds,
  7. sector/ thematic funds,
  8. dividend yield funds,
  9. value funds, and
  10. contra funds

Debt funds

Debt mutual funds are fixed income instruments, basically given as debt to different sectors behalf of you. The returns are generated as interest in this type of funds. There are 16 sub categories

  1. Overnight funds
  2. Ultra short duration funds
  3. Short duration funds
  4. Low duration funds
  5. Money market funds
  6. Liquid funds
  7. Medium duration funds
  8. Medium to long duration funds
  9. Long duration funds
  10. Dynamic bond funds
  11. Corporate bond funds
  12. Credit risk funds
  13. Banking & PSU funds
  14. Gilt funds
  15. Gilt funds with 10 year constant duration funds
  16. Floater funds

Based on time period the funds are classified as above sub categories.

The risk ratio varies from low to higher between the sub categories. Liquid funds and Gilt funds fall under low risk, where credit risk funds fall under higher risk profile.

Hybrid funds

Hybrid funds are combination of both the equity and debt funds. The ratio can either be variable or fixed. In short, it takes the best of two mutual funds by distributing, say, 60% of assets in stocks and the rest in bonds or vice versa. Hybrid funds are suitable for investors looking to take more risks for ‘debt plus returns’ benefit rather than sticking to lower but steady income schemes.

Solution Oriented funds

Solution Oriented funds created an easy path for the financial planning of complex long term objectives which may or may not need alteration in the strategy with respect to time.

Types of Solution oriented funds are

  1. Pension /Retirement funds
  2. Children funds ( includes various different goals like education,marriage)

Other funds

whatever mutual funds does not fall under any of the above discussed funds will fall under this type.

The most famous funds other than the above 4 types are following

  1. Index funds
  2. Funds of Funds
  3. International funds
  4. Real Estate funds

And right now the ETF’s are gaining the popularity. ETF stands for Exchange Traded Fund. It belongs to the index funds family and is bought and sold on exchanges

okay, now we understood the types of funds and how they earn money, but the main question is not clear yet.

Where to invest?

If you are a new investor, you will be required to carry out KYC or know your customer/client compliance through a Sebi-registered intermediary— mutual fund houses, distributors or online platforms—via the KRAs (KYC registration agencies). This is a one-time process mandated by Sebi to prevent fraud. It involves verifying your identity as a mutual fund investor.

This all can be done in simpler steps using the most popular apps to invest in Mutual funds, they are

Coin by Zerodha


Paytm money

These are the best services provide you direct plan for mutual funds with no comission or any extra fees.

I prefer Coin by zerodha as it’s the best broker for trading in share market and having larger consumer base and as well as a good business model

How to Invest?

You can invest into mutual funds in 2 ways. They are:

  • Lumpsum
  • SIP

Lumpsum, is investing at a time with large amount of money.

SIP, is Investing in frequent intervals with amount of money you are willing to.

But there is minimum amount of investment for any mutual fund. It varies from fund to fund. Basically it starts from very minimal amount of 100rs.

I think this article has clarified basic doubts about mutual funds. And now you can do your own research about your risk profile and which funds you want to invest and which AMC to choose.

There is a long way to learn. Stay tuned for more strategies | tips | knowledge | discipline. Do follow Learn Investing

What is Trading


Let us understand the Real Meaning of Trading.

In ancient times, trading used to take place with the barter system, where one could exchange goods against goods, and in today’s date, goods are exchanged against currency and vice versa.

The General meaning of trading is buying and selling of a product, service or commodity. Be it in any business, it would involve trading; ranging from Wall mart to a Fruit Seller, everyone trades; the difference is only in the way trades are executed.

Sell & buy

When one person/party purchases a good and sells it to other person/party with a profit margin, it is simply known as Trading. This is the basic business characteristic; that is right! But in stock market as well, there exist purchasers and sellers, and thereby, trade is executed in the stock market.

Though the duration of keeping or holding the good (Stock) differs from a day, a week or a month to a year or even more than that.

Trade is the life and the economy of the world. The 2 Fundamental reasons that lead to trading are:

  • Buyer & Seller
  • Demand & Supply

Both reasons are prevalent in stock markets as well. The trading of securities in the stock market is not considered to be a well-versed profession, while in my opinion, trading is a profession that is as holy as any other renowned business/profession in the world.

Trading is generally considered to be a bad word and is misconceived with speculation and speculators

While Investment is accepted as a good word. However, if we see the dictionary meaning of both the terms, the basic essence remains the same, i.e., both mean the process of buying and selling something;

the only difference is in the form of holding period and the applied approach.

“Trading is more of a science and Investing is more of an art.”

Mr. George

Soros is a Trader and Mr. Warren Buffett is an Investor, and both are equally successful and wealthy in their respective careers. During my initial stage of the career, I asked many about the better choice between Trading and Investing. Many preferred Trading; while some told Investing; I understood everyone holds their individual choice.

I eventually decided to be both, as “the religion in the market is to make money, irrespective of being a trader or an investor“.

Grow your money

Thus, I decided to be both Trader and Investor

Create your website with
Get started