Investing is all about accumulating wealth over time. There are different types of investments. The return on investment varies across products. Investment returns can be market-linked or fixed.
Equity investment means money is invested in a company by purchasing the shares of that company. As Per Indian money Review Equity investing is often considered as gambling because of the nature of operations. Return on investment is high, but involves a risk factor. Returns are dependent on market dynamics. It is an ideal investment to earn higher returns over a short period of time.
Important Things to Know Before Investing in Equity Funds
Uncertainty is the underlying feature of equity investments. Equity investing means investing in the future of a business. There is no defined rule to decide which business would succeed or fail. This means, you don’t know beforehand how your investment will perform in the future. This makes it scary, thrilling and risky at the same time.
Stories of great investors might give you the misconception that stock markets will pay you millions in the future if you buy cheap stocks now. But this is not true. Only an investor will know the real risk involved. Key point to remember is that nobody pays you for doing nothing.
Picking stocks is not easy. Many factors influence the life of a stock. Some factors play a significant role while others do not. Deciding which factor to focus on is not an easy game. Experienced investors will have the knowledge to judge which stocks to look for based on the signs. However this cannot be 100% true.
Decision to buy a particular stock is tough. There are several 100 stocks in the national and international market, and nobody can predict which one out of them will turn out to be a multi bagger. In the formal investment set up, fund managers write down the reason for choosing a stock. This helps compare the real success of a stock. Different investors have different motives. For a short time investor, time plays a major role whereas for a value investor it is the margin of safety that matters. All this contributes to the decision of buying a stock
Analysis of a stock requires expertise and knowledge in the stock market or related educational course. Ordinary investors lack this. Mutual funds hire brokers who in turn hire and pay qualified employees for databases to track stocks, sell reports and carry out research. An ordinary investor must utilize publicly available information and do extensive homework.
Equity stocks involve risk. To outlive this risk factor, diversify your portfolio. Build a portfolio and keep track of what it holds and how much.
Success in equity depends not only on your selection of stocks, but also on your assumptions. If you recognize a stock in which you invested is not performing up to your expectations, sell the stock and do no erode your capital. Do not hang on to a stock with false expectations.
Conclusion: Equity is an effective method of investing. If you are of the opinion that individual investing is risky, invest in equity mutual funds. They are less risky. It gives high returns over a short period of time. However, keep the risk factors involved in mind.