Generally, the word ‘Equity’ is closely associated with ‘Risk’ and it is rightly so.
However, as a part of Asset Allocation and portfolio Diversification, it is important to have
Equity component in the portfolio.
Following are the benefits of having ‘Equity’ in a portfolio:
- Helps in beating inflation
- Assists in portfolio diversification
- Excellent Return on Investment in the Long-Term
- Regular Income by way of “Dividends”
Methods of Investing in Indian Equity Market:
- Mutual Funds – Investing in Mutual funds is a passive investment strategy where there
is an expert who manages the entire fund. The investment can be by way of Lumpsum
or Systematic Investments. By Systematic investments, I mean investing a fixed amount
at regular intervals over a period of time. Historically, this has given reasonable Return
on Investments provided the investment is made in a good fund. This type of
investment is best suited for individuals who are beginners or individuals who would
want to manage their investments passively. One important aspect for a Lumpsum
investment is the timing of the investment. Since the investment is made at one go,
timing of investment becomes very crucial. Hence, most prefer the SIP route.
- Shares – One may invest in Listed Companies through his/ her DEMAT account. Detailed
analysis before initiating the investment becomes very crucial. You may choose to invest
in ‘Bluechip’ Stocks, i.e. the Large Companies that form part of the major indices. On the
other hand, one may follow a ‘Value Investing’ approach where stocks that are under-
priced compared to its intrinsic value are bought and held for a reasonable period to
make substantial gains. One who has strong research capabilities couples with good
Money Management technique has made attractive returns in the Indian Equity Market.
Another variant/ extension of Shares would be Derivatives that are predominantly used
for Hedging. This would facilitate reduction of Loss in case of adverse situations.
Individuals who enjoy ‘Analysis’ (be it Fundamental or Technical) prefer investing in
shares and make a good buck out of their investment.
Things to keep in mind while investing in Equity:
Overall, Equity as an Asset Class is a must for any portfolio!
- Have an investment plan
- Make a thorough analysis
- Follow proper money management techniques
- Hedge portfolio wherever necessary
- Monitor portfolio at ‘frequent’ intervals
- Rebalance entire portfolio to maintain ‘desired’ Asset Allocation