Start Investing In Equity

 

HOW TO START INVESTING IN EQUITY 

Investing is a way to set aside money and have that money work for you so that you can fully reap the rewards of your labor in the future. There are many options to invest and earn returns in the market such as Stocks, Corporate Bonds, Government Securities(G-Sec), Debentures, PPF(Public Provident Fund), NPS(National Pension Scheme), Precious Metals(Gold, Diamond), and Real Estate, etc.

 As there are many options to invest in it most of the time it confuses the investor as to which asset class to invest in. There are broadly two kinds of asset classes, First Equity and another is Debt. Equity Shareholders are the real owner of the company. However, the returns in the equity asset class are very uncertain. Debt Holders are the Creditor for the Company and they get the fixed interest on their investment.

There are many factors that influence an investor's allocation to each asset class such as Risk appetite, financial condition, Yearly expenses, yearly Income, age, future financial needs, etc. Therefore, an investor must know all these things before their asset allocation. Now, we are going to see how to manage your Equity Portfolio.

Equity Investment is one of the riskiest assets class as compared to others. However, equity can give the best return to the investor in the long run if investors invest in it carefully. So the question is how to invest in Equity and earn the best possible returns in a longer horizon.

INVEST ON YOUR OWN :

You can invest in shares on your own, but investing in stocks on your own requires lots of effort such as appropriate market knowledge, learning how to read financial statements of the companies, knowledge of the economy and industry, comparing a company's performance to its peers and God knows how many more things to consider before investing in a company. Therefore, it is very hard to invest on your own and earn returns consistently in the market; that is why I do not recommend anyone to invest in stocks without any knowledge of how the market works.

Mutual Fund: 

A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. Mutual fund charges some expense ratio depending on the scheme you choose as their commission. It is the best option for equity investment because it hedges the risk of the investment by diversifying it throughout the different industries and sectors. It offers a variety of funds to the investors as per their needs such as Large-cap funds, Mid-cap funds, Small-cap funds, Flexi-cap, Multi-cap, etc.

A mutual fund is a big topic in itself because there are  44 mutual funds in India with hundreds of schemes. There are two ways to invest in mutual funds first is Regular in which you invest your money through a mutual fund distributor and the other is Direct in which you invest your money directly into the fund. Both methods are good but you have to select which one is better for you, If you invest through a mutual fund distributor you do not have to worry about which scheme is right for you, documentation, monthly reports, tax on funds, etc. In addition, you pay a small percentage of returns to the distributor indirectly. Although, if you invest through a direct method you have to have some basic knowledge about Funds and the market which can be a little hard for you if you are a working person.

    Some people might say that you should not invest in mutual funds because most of the fund managers are unable to beat the market so you should consider Index Fund. In spite, this is very true in the world and a report finds almost 80% of active fund managers are falling behind the major indexes but this is the scenario for the developed world(US, UK, European Union) because they have the mature market so it becomes harder and harder for the fund manager to outperform the market. Moreover, in India, there are many funds that gave more returns than their benchmarks in 5 years and 10 years periods. But, yes you can invest in index funds too.

Thank you, If you have any suggestions please let me know. If you need any help regarding investing in equity you can comment or contact me.