So you are 22 years of age and wish to invest in equities, right? Ok make it 32, 43, or 55 – if you are a new investor this post is for you. If you are an existing investor see if you have done these things already or do it now!

Welcome to the very many people who wish to invest in equities, but do not know where to start.

First things first. If you are doing a career in medicine, or are a lawyer or any other professional, chances are you will not get enough time to do direct investments. You might be better off investing in a mutual fund.

Having said that upfront, I do think that with a little bit of research and some diligence it might be possible to perform better than many of the fund managers. However your ability to beat the best fund managers looks close to impossible.

Start at the very beginning. First of all make YOUR Investment Philosophy Statement. THAT HAS TO BE THE FIRST STEP.

Once you know why you are investing start reading books – and I am not saying that reading has any sequence. Be very careful about what you read. Too many half baked websites on personal finance, equity, etc. – best is stick to the books. Unfortunately or fortunately most of the books on investing are American. No great Indian books, but Parag Parikh had made some start. Good websites by people like Chetan Parekh are a rarity, but yes a good place to start for sure.

Every share that you buy (portfolio) or decide to buy (watch list) should have a logic, price target, time target, etc. The portfolio and the watch list should go into a FREE WEBSITE like value research online, Morningstar (I have not used it myself),  so that you can analyse it industrywise, and track the performance vis a vis a top fund like I Pru discovery, or a Franklin India Bluechip or Hdfc Equity. Surely you will have your own preferences. What it matters is a 3-5 year performance, but if you are miles behind on a quarterly or a monthly basis for one whole year, you better have a solid, solid reason for that. All the reasons, logic, etc go into an Investment diary – the human mind deletes INCONVENIENT thoughts and data, SO IT MUST BE HANDWRITTEN diary – NOT just a word document saved somewhere on the web.

this is a good beginning. Lots of people will tell you that it is impossible to outperform the fund managers. That is true only for the top fund managers – and some of them have some amazing advantages which you and I can NEVER HAVE. Do remember that all the fund managers have RIL which has pulled down the sensex from the year 2007 to 2013. Sure they will have solid reasons for that, but remember even if you have bought some FMCG share in 2007/8 you would be much better off. Do read – an American website which believes that individuals can beat fund houses. Many of the fund managers had (have) Rcom shares and many of them have Rcom debt guaranteed by R Capital. Personally you will never pick up a GVK or a GMR but even top fund houses have some such shit in their portfolio. Remember if you are comparing yourself to a fund like Templeton India Growth fund, you have a 2.7% per annum advantage – of course you will pay brokerage, and demat charges, but on an average you might have a big advantage. Choose your benchmark wisely and go on, make a start.

HOWEVER, investing in yourself and in investment education is step ONE…then start investing in the markets. All the best.

I am caught between the academics who say YOU cannot beat the index, and some reality of index beating friends….so the choice is yours.

However if you do invest on your own or through a MF the above-mentioned steps are worth doing…..

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  1. Hi Subra, I have one basic question on MF expense ratio. Do I need to find that out separately or it reflects in the NAV of MF? My understanding is NAV drops whenever expense ratio is expensed so no need to track that separately. If NAV beats benchmark, it means fund is beating it AFTER expense ratio. Is my understanding correct?

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