Investment in equity shares has become a popular mode for earning higher returns and building wealth, especially post the Covid-led pandemic. The number of retail participants joining the active market is testimony to this fact. Additionally, it is growing to be an excellent way to tackle the perils of rising inflation and ensure that your savings are not eroded over time.
Entering into investments in equity shares can be quite a tedious task for novice investors. Which stock do you pick? Which sector should you invest in? How are the various factors influencing the market going to influence the price of the stock I pick? While investing in the stock market may help you grow wealth over time, there are a few intricacies you must take note of before investing in equity as an asset class.
What is equity?
Issue of equity shares is one of the most common ways of infusing long-term capital in a company. When a company goes public, it sells shares of the company to investors and uses the money raised for business growth. When an investor purchases a certain percentage of stock in a company, they become part-owners of the company equivalent to their purchase.
In this way, you become a shareholder in the company. Being a shareholder also bestows certain rights and benefits upon the investor. Apart from the fact that a shareholder may sell their holding and book profits if they feel the price has appreciated enough, shareholders also get dividends as additional income whenever declared by the company.
Types of equity investment
There are two common types of equity investments – equity shares and equity mutual funds.
There are more than 7500 companies listed on the stock exchanges. The price of each share changes by the minute depending on the demand and supply. Stocks have a very high potential to appreciate in value and earn stellar returns for investors over the long term. However, stock investments are also one of the riskiest asset classes. Picking individual stocks can be a daunting task, sometimes even for seasoned investors. It requires a trained eye, understanding of market mechanics, and use of fundamental and technical analysis to be able to pick winners.
TejiMandi may be able to assist you with your investing journey. As Sebi-Registered Research Analyst, we have authorized professionals in the field with years of experience backing our stronghold through market research. Being a subsidiary of Motilal Oswal Financial Services, we bring the same kind of expertise and skill to the table. Invest in Teji Mandi Portfolios
Check out our article Smallcases vs Direct Stock Investments here. Where would you put your money?
Equity mutual funds:
These are a type of mutual funds where the majority of your money is invested in the shares of several companies by an experienced fund manager. With equity mutual funds, the fund managers use their skills and expertise to monitor and rebalance the composition of the fund to ensure that your savings are invested in the most promising stocks. Equity funds give you the opportunity of diversifying your investment and get your money professionally managed.
Benefits of investing in equity
There are ample reasons why investing in equity may be a good option for you. Some of them include:
1. High returns on investment
Buying stocks of fundamentally strong companies will help increase your wealth with solid returns. As the stock prices increase, so will your returns. If you compare the rate of returns between equity shares and fixed deposits, equity shares have proven to generate significantly higher returns over the same period. TejiMandi can help you pick stocks with strong performance potential that may generate favorable returns.
2. Beat inflation
Investing in equity as an asset class is one of the best alternatives since the returns generated by the segment generally surpass the rate of inflation in the short term as well as the long term. Since fixed-income investments such as fixed deposits and savings accounts give you a fixed rate of interest, often lower than the rate of inflation, your money is bound to lose value over time. However, keeping the risk factor in mind, it may be prudent to have some money in the safer fixed income bucket that can provide you with the stability of income while your equity investment works to appreciate capital.
3. Earning dividends
One of the added benefits of equity investing is earning dividends. A dividend is a portion of a company’s profit that is distributed amongst the shareholders. Although the percentage of dividends differs in each company, organisations with constant dividend trends are a preferred option for long-term investments. In fact, dividend investing is a strategy in itself! Speak with the experts at TejiMandi to know more.
Things to take note of before investing in equity
There is no doubt that investing in equity promises high returns, however, there are many things you should consider before taking the first step. Here are the top things to consider before investing in equity:
Invest in blue chips:
In general, blue-chip companies are always given the highest preference. This is because these companies have strong fundamentals, are financially stable with excellent market capitalization, and have been around for more than a decade building trust among investors. These companies tend to be a safer alternative if you are a novice investor. Investing in the equity market can feel overwhelming without support. Financial advisors at TejiMandi help you cut through the clutter and invest in fundamentally strong companies to increase your returns.
Utilize technology optimally: When it comes to investing in equity, information is key. However, there is also quite a range of dubious, often untrustworthy information that various agencies dole out. While you can always check out information from various sources, it is important to validate the information you receive through various channels. At the end of the day, none other than yourself should be taking a call on where you invest your money. You should be able to make the decision after analyzing all the parameters.
Through the TejiMandi App, you can invest in stock portfolios in a matter of one click. It is also a trusted source that provides the latest market information, which is analyzed by experts.
Risk appetite:
Equities are risky asset classes that are sensitive to various systematic and unsystematic risks. They also run in cycles and, at times, are extremely volatile. Hence, it is advised to analyse your risk appetite and research thoroughly before investing in equity or related instruments.
There are some tips that you can follow before investing in equity shares. Some of them are as follows:
Always have a proper plan:
Before stepping into the realm of equity investments, do keep in mind that you should have a plan of action. The thing with equity is that an exit strategy is as important as an entry plan. Also, given the high-risk quotient, you would need to plan your capital investment well so that you aren’t in a crunch.
Research on your own:
Rather than getting influenced by pre-existing information, try to study the movement of the overall market by yourself. There are plenty of tools available – to learn about the market as well as to conduct your own research. Seek guidance from professional and qualified financial advisors instead of family or friends.
Keep diversifying your investments:
There isn’t any hard and fast rule that you have to keep investing in a specific company for a long time. It is, in fact, advisable to always diversify your investments – within the same sector or across sectors, across market caps, across even geographies, if possible.
Market research is key: Keep scanning the market for emerging companies with high future potential. The key to making a good investment is to spot a potentially great company before the market realizes its worth. Conducting thorough market research is key in this regard.
The takeaway
Over the last two years, there has been a huge influx of new, first-time investors entering the stock market due to the attraction of higher returns and higher investor awareness. Nevertheless, the stock market is highly volatile and there is high risk involved in the equity market transactions. However, you can minimize the risk by choosing the right stocks and investing for the long term.
Investing in equities is one of the best ways to grow your wealth. However, you need expert help in choosing the right stocks to invest in to reduce risk and increase your returns. This is exactly what our investment advisors at TejiMandi do. With decades of experience handling investment portfolios, TejiMandi has come up with lucrative investment options to help you make the most out of every buck you invest! Download Teji Mandi App today!
