Planning to make your debut in stock market investment but don’t yet have sufficient funds for it? If you’re considering taking a personal loan to finance your investment, think twice because experts say it is not for the faint-hearted. It is highly advisable to take these loans only when you have necessary big purchases or cost-intensive plans like international trips.
Here’s why taking a personal loan for stock market investment is not the safest decision:
- Personal loan interest rates are usually more or less between 15-18%. If you apply for a loan to invest in the stock market, this means you will need a solid return of more than 15% to make a profit on that investment.
- Getting such returns every year for a significant period can be hard given the volatility of the market.
- Experts say that it can be extremely risky to invest in the stock market for the short term as investments need time to gain momentum and increase in value.
As much as the stock market is for investors with a very higher risk appetite, the returns are observed to be so attractive that they often convince people to go all out. And if you have made up your mind on taking a loan for investing in the stock market, consider the following pointers.
Consider the interest rate
- The process of availing a loan to invest in shares is known as gearing or leveraging.
- Investing in the stock market is burdened with risks and you should only opt for it when you have a considerable risk appetite, enough funds to cover a loss, and an extensive knowledge of stock markets.
- Increase your credibility by paying off your bills, clearing the credit card dues, and eliminating any old debts. This will improve your eligibility.
- Improved personal loan eligibility and a good credit score can significantly lower the interest rates.
- In case you have taken a loan with a highinterest rate, it means you will have to shell out considerably more in terms of EMIs. This can damage your monthly budget.
- Calculate all your fixed monthly expenses and then accommodate the EMIs to see if the math checks out.
Learn all about investing
- Jumping into the investment pool without knowing about it can drown you into debt.
- You must read up and research on how the markets work before investing.
- Investing in the equity market is all about knowing how and why a stock is performing, this knowledge can assist you in predicting future trends in the market.
- While eyeing a specific stock in the market and considering borrowing for investing in it, make sure you know everything that is to know about the stock.
- You could lose money if you’re not cautious and if you know the game well enough, you might just win it.
Taking out a loan to invest in the stock market is not an idea that you can just reject. If you are careful with your investment, have done your homework, accommodated the financial risks in your current budget, then opting for a personal loan for stock market investment can be fruitful. With reasonable interest rates, your loan can give you a good amount to invest and you can create a diverse portfolio for yourself.