Investing in equities – risk or reward?
Equity is the value of the shares issued by a company. The big lure of money always brings investors into the stock market looking for big payoffs. Investing in equities in India requires a lot of discipline, patience, ability to bear the volatile nature of the market and a sound understanding of the market itself. Investing in equities, if done right, brings large dividends. However, investors in emerging markets such as India tend to follow the herd mentality. If everybody is investing in a particular stock, the tendency for many investors is to follow that particular stock.
However, Warren Buffet, the most respected equity investor in the world says, “Be careful when people get greedy, and be greedy when people get fearful”. Perhaps before diving deeper into the risk vs. rewards discussion, we need to look into the reasons why people are attracted by equities in the first place. One of the biggest reasons for investing in equities is to quickly attain financial gains. So how does one begin?
How to start investing in shares?
As a shareholder, you are a part owner of the company, which means that you have a right to share in the company profits (called dividends) shareholders make money in two ways: by selling shares at a higher price than they paid for them and receiving dividends.
To start investing in shares, consider the following.
- Get a broker – A broker is a member of the stock exchange and he buys and sells shares for his clients and for himself.
- Ensure you have a PAN card number – This is a unique 10-digit alphanumeric number (AABPS1205E, for example) that identifies and tracks an individual in the taxman’s database.
- Check if you need a Unique Identification Number – The Unique Identification Number is the identification an investor needs to buy and sell shares or mutual fund units. Most investors involved in a single transaction of Rs. 1,00,000 or more require a UIN.
- A Demat Account – Gone are those days when shares were sold to you as physical certificates. Today, you can hold on to your shares in the form of electronic shares in Demat accounts. This allows an individual to invest in shares online. Demat is the short form of a Dematerialised account. You can obtain your Demat account from a depository. There are only two depositories in India i.e. the National Securities Depository Ltd and the Central Depository Services Ltd. They can give you an account where you can hold those shares.
Golden rules of investing in shares online
A good financial institution offers you an online access to managing your funds via investment in shares or a pool such as mutual funds. For example, Bajaj Finserv has a distribution tie up with 14 asset management companies. They offer full range of products ranging from liquid to equity from renowned asset management companies with a strong track record.
All the mutual funds are registered with SEBI. They function within the provisions of strict regulation created to protect the interests of the investor
- Invest as per your objective – The first step to investing in mutual fund is to define the objective of investing.
- Start investing early – The goal of investing is to build wealth over time. This means the earlier one starts and longer the investment horizon, the larger the benefits. Hence, the cost of delay in any investment program can be significant.
- Invest regularly with discipline – Reap benefits of mutual fund by investing regularly using Systematic Investment Plans (SIPs). Harness the power of two powerful investment strategies.
- Invest for the long term – Time in the market is more important than timing the market.
- Invest only in the best – Buying into a high-quality mutual fund and holding it for a long time (years) is the best road to investing success. In partnership with CRISIL, we help you choose the best Mutual fund in each category.
- Invest on the basis of individual risk appetite – Deciding what amount of risk one can take while remaining comfortable with investments is very important. Calculate your risk score with our risk profiler that distinguishes you into various categories based on your responses.
Advantages of investing in shares
One can benefit from investing in a diverse portfolio of Shares, Debt Securities and Money Market Securities by understanding the advantages of investing in shares below.
- Low transaction costs – Due to economies of scale, Mutual Funds pay lower transaction costs. The benefits are passed on to Mutual Fund investors, which may not be enjoyed by an individual who enters the market directly.
- Professionally managed investments – Mutual Funds are products that are usually managed by qualified professionals who are equipped with the right expertise, resources and experience. These professionals or financial institutions such as Bajaj Finserv are constantly monitoring the markets and economy for good investment opportunities.
- Transparent valuation – Mutual Funds clearly present their investment strategy to investors and regularly provide them with information on the value of their investments. Also, a complete portfolio disclosure of the investments made by various schemes along with the proportion invested in each asset type is provided.
- Regulations to safe guard investors – All the mutual funds are registered with SEBI. They function within the provisions of strict regulations created to protect the interests of the investor.
- Liquidity for Emergencies – One of the most important advantages of investing in a mutual fund is that you have instant access to money when any urgent need arises. You can withdraw the entire sum invested or a part of it any time you wish to. To tide over personal emergencies or financial crunches, you can get a loan against your Mutual Fund. Bajaj Finserv brings to you the option of a Loan Against Securities, which provides approval in minutes.
To ensure you are eligible, please check here. You can make your Mutual Fund Investments simpler with the best mutual fund interest rates at Bajaj Finserv.
Disadvantages of investing in shares.
Like with everything, there can be a downside to investing in shares based on the strategy you observe as well as the financial institution you hire in order to manage your investments. It is always best to be aware and then make investments. Read further in order to understand some pitfalls to avoid while investing in shares.
- Negative Growth
As an equity investor, you are part owner of a company and hence participate in the growth opportunities that your company can benefit from. However, if the company performance starts to tank, your share value will also dive down just as quickly. Some companies are not able to adjust to inflation and that could be a huge risk in your portfolio. Be careful with your allocation of funds.
- Wrong Timing
In the short term, performance of equity shares tend to be driven more by market sentiment and less by company fundamentals. The right time perspective for investing in equities is one that allows an investor to benefit and participate in the company’s growth and should preferably be greater than 5 years. Have a long term strategy in place to safe guard your interests.
The bottom line.
The bottom line is that if you choose the right financial institution and have the right time perspective, in the long run, it doesn’t put your investment at risk. Chances are that your rewards are awaiting you in the near future because a good company like Bajaj Finserv will multiply the value of your investment at a rate that will make your initial investment only gain in value over time.