• HDFC securities
• 27 Mar 2023
• Knowledge Centre

 

To achieve financial goals, it is essential to develop certain investment strategies that suit your risk profile. Having a solid investing strategy helps you choose the right Stock, optimise earnings from them and mitigate the associated risks.

These investment strategies should be flexible, viable for every circumstance and formulated considering investors’ short-term goals and long-term goals. Check out some of the top investment strategies.

Value investment strategy

Value investment strategy is very popular among all investors. It was introduced by Benjamin Graham in the 1920s and popularised by Warren Buffet in recent times. The strategy works by looking into the intrinsic value of the stocks. Investors determine the stocks that are either undervalued or overvalued depending on their intrinsic value.

By opting for the value investment strategy, you buy stocks that are undervalued. You hold them for a fair period and redeem them only once the stock attains its intrinsic value or higher. The reason why this strategy is so popular is that it allows risk minimisation. The risk minimisation is done by using the margin of safety. Since these stocks are purchased when they are undervalued and sold at a higher value, you make decent capital gains.

Growth investment strategy

If your primary goal is wealth creation over the long term, the growth strategy is one of the best investment strategies to explore. In this strategy, you look out for companies that show strong upside potential for future earnings that can be over and above the sector average. This strategy evaluates the present health of the stock along with its future growth potential.

Growth companies are typically small and growing. They do not share their profits as dividends with their shareholders but rather reinvest in the company’s growth. Though these stocks possess a higher profit-generating potential, they can also involve higher risk.

Income investment strategy

If you are looking to create an additional source of income and have a low-risk appetite, this investment strategy is for you. The strategy involves investing in instruments that generate a regular passive income. This includes securities like high dividend-paying stocks, Bonds, Treasury Bills and Real Estate Investment Trusts (REITs), among others that produce returns in large cash payouts. You earn a passive income from these instruments through dividend yields and interests.

Indexing investment strategy

Indexing investment strategy focuses your investment on a particular market index. A market index is comprised of stocks having similar characteristics. These indices can be benchmark indices like BSE Sensex and NSE Nifty, market capitalisation indices or sectoral market indices like BSE PSU Index, BSE Oil & Gas, Nifty IT and Nifty FMCG.

You can opt to invest in any of the above-mentioned market indexes either by making an individual, direct investment by buying stocks included in the market index or opting for index tracking instruments like Index Mutual Funds and Exchange Traded Funds (ETFs).

Contrarian investment strategy

The most common stock investment advice is to always act in accordance with the ongoing market trend. However, this particular investment strategy advocates the contrary. It encourages you to buy stocks when the market is low. It works on the belief that the market will bounce back once it has witnessed a terrible fall. By buying stocks at a low price and selling them at a higher price when the market bounces, you stand a chance to make good profits.

It is one of the top investment strategies to adopt if you are a seasoned investor and have a high-risk appetite.