How Do I Invest Small Amount of Money in Share Market Safely?

Dear Friend!

I find your question is very sensible on two crucial aspects: small amount of money and safety of investment.

Safety of investment comes from knowing what we are doing. Conversely not knowing what we are doing causes ‘Investment Risk’. There are two things you can do:

1. You can learn investing safely in the share market through ‘Value Investing’ for which I recommend you read the wonderful book, “The Intelligent Investor” by Benjamin Graham. Value Investing is safe and shares can be purchased for small amounts of money. 
   
2. If you can not learn investing for whatever reasons, you may invest in an ‘Exchange Traded Fund’ or ‘ETF’ or a ‘Mutual Fund’.

ETFs:

An ETF is created by fund managers that exactly reflect popular stock indices like BSE Sensex and NIFTY. In India ‘Goldman Sachs’ provide many ETFs, the popular being ‘Nifty BEES’ and ‘Junior Nifty BEES’. You may also invest in any mutual fund of a credible organisation. ETFs can be purchased just like shares on the stock market through online online platforms.

Mutual Funds:

Mutual Funds are operated by reputed financial institutions. There are different funds based on equity, debt and various mixes of both. Debt funds provide regular income but no capital appreciation. Equity funds provide both. Please do not allow yourself to be confused by issues like which mutual fund best returns. All funds are equally good in the very long term.

What is important in investing is not to disturb the investments for very, very long periods of time, say for twenty to fifty years. Over such long periods of time the law of ‘Miracle of Compounding’ will work for you in creating significant wealth.

In conclusion, yes, you can invest small sums safely in the stock market and become rich over a long time.

Is it Advisable to Buy a Stock Before it Becomes Ex-Dividend?

Indeed a good question, after closely observing  the market behaviour, which indicates that the price of a scrip falls straight after the stock becomes ‘Ex-Dividend’ or ‘Post-Dividend’, approximately equivalent to the quantum of dividend. It is also true that the price usually climbs back to the previous level.

Therefore, it really does not make a difference, in the long run whether one buys a scrip before or after it becomes 'Ex-Dividend'. Even in the short term there is no loss and one may gain the dividend income as a bonus, when the price eventually regains its previous level.

The more important question is whether the stock is worth investing in, in the first place? If it is and if you one the money for investment, the sum should be deployed for purchasing the shares immediately. Not deploying the amount earmarked for investment is indeed a serious folly.

Since wealth creation happens only over a very long time, out of innumerable purchases of stocks, receipt of dividends and on the back of the law of ‘Miracle of Compounding’, all the minor variations will be ironed out, and really do not make any difference. One may buy the either before or after it becomes 'Ex-Dividend' and it may be slightly more beneficial to buy before, and I have personally done this a few occasions in the past and after having answered the question seriously considering repeating the scheme of buying immediately after dividend announcement.