Small investor in India are retail investors or the individual investors. These small investor purchases securities in his or her own personal account. As per Nasdaq small investor definition is –
An individual person investing in small quantities of stock or bonds. This group of investors makes up a minimal fraction of total stock ownership.
Sometimes unknowingly, these small investors behave or act towards their investment decisions in such a way that will lead them to a significant loss. They need to keep check their such behavior and improve it significantly. In such way, they can fulfill all their financial liability of their life. Here we will discuss those behavior patterns which harm the small investors in long run.
Habit 1. Small investor wait to gather lump-sum funds
Small investors in general, wait to gather fund in a lump-sum amount. Afterward, they plan to invest. Rather investing small amount regularly.
For example, they wait to accumulate the amount of Rs. 60,000 for 12 months rather investing Rs. 5,000 every month.
This is not the efficient way to invest. The reason is generally we accumulate the money in our saving account and it earns only 4% interest which is not sufficient to beat the inflation. In this way, an investor will not get the time value of their accumulated money in that duration.
Also, there are chances that the money could spend due to some urgency. And it’s a general human tendency that if we have money in our saving accounts we tend to invest to fulfill today’s requirements.
That is why I recommend them to Invest small amount regularly. As soon as you start earning rather waiting to gather the amount and then invest it.
Habit 2. Small investor prefer saving instruments
People prefer saving instruments to deposit their savings money. Saving instruments like a fixed deposit. Although these instruments provide the fix or safe returns. Moreover, interest on these instruments is also taxable. However, these instruments are quite inefficient to beat the inflation.
These instruments are good to achieve your short-term goals. Whereas for long-term goals like the retirement plan, children’s education and marriage etc. Therefore, my advice to such small investors is to invest in capital market-linked instruments. Returns on these instruments also provide tax benefit and capable to beat the inflation.
Habit 3. Retail investors fail to fix time horizon for investments
Some investors fail to decide about the tenure of their investment. Sometimes investors withdraw the fund pre-maturely. The question is whether you really need money. Suppose the tenure of your SIP is completed still you can continue with the investment scheme and earn more returns or you can reinvest your returns after the tenure is over.
Habit 4. No increment in investment amount by small investor
This is a very common mistake made by small investors. They do not increase their investment amount with the increment in their salary.
However, to keep pace with inflation one needs to increase the investment amount as well with the increment in their salary.
Habit 5. Retail investors lack analysis of their investments
Generally, small investors do not analyze their investment potential and risk-bearing capacity. Such investors generally follow big investor’s investment style. It is advisable that small investors should analyze the market and follow the news then take the decision about investing in the capital market.
Moneydial pieces of advice to every small investor, invest small amount but regularly rather wait for an accumulated fund. Most importantly, one should not follow other investors because everyone has different risk profiling, different perception, and reasons to invest. Keep eye on your investment habits and improve them in order to achieve your financial goals at each step of your life.