Common investment fears: Understanding and overcoming them

Investing may seem daunting, but it doesn't have to be. By grasping and conquering your fears, you can invest with assurance and strive towards your financial objectives

How many times have you heard people say, "The stock market is gambling." This is the most common myth about investing in the stock market. People pass this myth on from one generation to the next. They worry that it's too risky and that you could lose everything. We're often told that having a high-paying job is the only way to create wealth. That's partly true. Your savings from work can be a start. But if they are not invested wisely, inflation will shrink their value over time. After say, 10 years, your money won't buy as much. So, it's important to invest in things that beat inflation.

Surprisingly, not many people in India use financial instruments like stocks when they save for their retirement. According to NSE CEO, Ashish Kumar Chauhan, 17% of Indian households while 61% of adults in the USA invested in the stock market.

The fact of the matter is that there are many who worry that trying new investments means taking too much risk and that going beyond things like parking their money in savings accounts or gold is dangerous. This belief makes them doubt their chances of growing their wealth. So, if this fear keeps you from looking at new investments, you're not alone. However, it is essential to find ways to overcome your fears and invest confidently.

Let us take a look at the most common phobias around investments and how to navigate them successfully.

FEAR OF LOSS AND FAILURE

Invest only in what you're comfortable with. Consider how much you'd be okay with losing in the event your investment goes wrong.

Start with a small investment that won't hurt your finances. Increase it gradually as you feel more confident. Don't wait; take action today, no matter how small. Open an investment account or invest a small amount.

Keep your expectations real. Investments go up and down. Focus on growing your wealth over time, not making quick gains.

Do your research (DYR) and learn about different investment options. Choose those that match your risk tolerance and goals. Go for beginner-friendly resources like articles, webinars and videos. They simplify investment concepts, so you don't feel overwhelmed.

Track your progress and celebrate even the small wins to stay motivated. Before you start investing, make sure you have an emergency fund. This helps cover any unexpected expenses and gives you peace of mind about your finances. FEAR OF THE UNKNOWN AND INFORMATION OVERLOAD

If you've never invested in stocks before, it might feel scary. There's a lot of information out there, too. Tips, ideas, and more — social media is full of it.

Understanding the stock market can be overwhelming, especially with all the information available. But there are ways to ease your worries. Try simulated investing platforms like StockGro where you can practice without using real money. Use virtual cash to learn how trading works without any risk.

It also helps to join investment communities, like StockGro, with over 25 million Indians who learn from each other’s experiences.

Remember to take things one step at a time. Start with the basics and learn more as you go. With these strategies, you will feel confident navigating the stock market and making smart investment choices.

FEAR OF TIME COMMITMENT

Starting in the financial market can feel overwhelming. There are so many stocks and investment options to choose from. Many think that investment is a full-time commitment. But, it’s not. Here are some tips to help you:

▪ You could use automated investment options like Systematic Investment Plans (SIPs). They let you invest regularly without managing your portfolio all the time.

▪ Focus on your long-term goals. Investing is like a marathon, not a sprint. Automate your investments and keep your eyes on the prize. Using these strategies, you can invest confidently and reach your financial goals without feeling overwhelmed by time constraints.

FEAR OF TAX IMPLICATION

Taxes might seem confusing when you're investing. But once you understand them, it gets easier. Remember, taxes should be considered, but shouldn't drive all your decisions. There's more to learn about fees than what we’ve covered here. Keep exploring if you're curious about specific areas or have more questions. So, while you learn about the tax structure of different investments below, note that tax-effective investments are not always the most profitable ones!

In the meantime, here's a quick look at taxes for different investment options.

Let's start with fixed deposits (FDs). If the interest you earn on FDs is over ₹ 40,000 starting in April 2019, PAN users have to pay 10% tax, and non-PAN users have to pay 20%. This tax, called TDS (tax deducted at source), gets deducted when you get your annual interest.

Next comes gold. According to the Indian Income Tax Act, if you sell physical gold, you will have to pay a 20% tax and a 4% cess on long-term capital gains (LTCG). This adds up to a total of 20.8%. But this rule doesn't apply to short-term gains. Any profits are considered long-term gains if you hold on to your gold for more than 36 months. But if you sell within 36 months, it's a short-term gain. The tax on short-term gains depends on your income slab. The same goes for Paper Gold, encompassing Gold Mutual Funds, Gold ETFs (Exchange Traded Funds), Sovereign Bonds, etc.

Now let us come to equity. Income/loss from the sale of equity shares is covered under the heading -- Capital Gains. Under this heading, income is further classified into: a. Short-term capital gains (STCG) b. Long-term capital gains (LTCG)

This classification is made according to the holding period of the shares.

A. SHORT-TERM CAPITAL GAINS

If equity shares listed on a stock exchange are sold within 12 months of purchase, the seller may make a short-term capital gain (STCG) or incur a short-term capital loss (STCL). The seller makes shortterm capital gains when shares are sold at a price higher than the purchase price. Short-term capital gains are taxable at 15%.

Let's take a look at an example of STCG tax: In October 2022, Kuldeep Singh paid ₹ 50,000 for 250 shares of a publicly traded firm for ₹ 200 per share. He sold them for ₹ 240 per share after 5 months ie ₹ 60,000. Let's see how much money he makes in the short run.

Total sales value: ₹ 60,000

Brokerage at 0.5%: ₹ 300

Purchase price: ₹ 50,000

Therefore short-term capital gains made by Kuldeep Singh will be: ₹ 60,000 - (₹ 50,000+ ₹ 300) = ₹ 9,700.

Tax will be 15% of STCG = ₹ 1,455

A special tax rate of 15% applies to short-term capital gains, irrespective of your tax slab.

B. LONG TERM CAPITAL GAINS

Let's understand the LTCG with the help of an example. For example, Atul Prakash bought shares worth ₹ 2,00,000 in October 2021 and sold them for ₹ 5,00,000 in December 2023. Let's see how much the LTCG is for him.

Moreover, individuals can save taxes by investing in tax-saving options. Various investments offer this benefit, which helps significantly enhance the country's overall investment portfolio, as everyone wants to take advantage of this benefit. EQUITY LINKED SAVINGS SCHEME (ELSS):

ELSS is one of the market's most popular taxsaving investment tools. It's one of the best ways to save tax under Section 80C while earning substantial returns by taking advantage of the market opportunities.

Public Provident Funds (PPF): PPF is one of the top tax-saving instruments under Section 80C, backed by the Government of India.

For complex tax situations when filing income tax, seeking guidance from a qualified tax professional is advisable.

WRAPPING UP

An investment portfolio's success ultimately hinges on asset allocation. You can balance risks and returns by diversifying your portfolio to include major asset classes such as debt, equity, gold, etc. Investing may seem daunting, but it doesn't have to be. By grasping and conquering your fears, you can invest with assurance and strive towards your financial objectives. Don't allow fear to hinder your progress—take that initial stride towards financial independence today!

Taxes can get confusing for investors. And many people make the mistake of allowing tax rules to dictate their investment choices. Such investors should know that while considering tax implications, investments should only be made on risk and return analysis. This is a more rewarding strategy