Skip to main content

For New Investors in Equities



For any investor, whether firsttime or not, a crucial point to keep in mind is the formulation of an investment plan. Such a plan is meant to be based on the projection of 'needs' over a period of time, normally spanning the entire lifetime.

An investment plan may help the investor arrive at a realistic investment objective and the time required to get to the objective. It also assists the investor in determining the risk-return trade-off. This enables the investor to narrow down the investable asset classes, regulating the asset allocation ratio, and drawing up the asset quality framework to adhere to.


The investor must realise that equities market in the short run tend to be highly volatile, but its long-term return potential remains high. Thus, the equities asset class is considered as a viable medium for investors wishing to build a large corpus over the long term. For example, an equity investor who would have invested . 10,000 in January 1980 in the BSE Sensex would have built a corpus of . 16.45 lakh by the end of March this year, at an average CAGR of 17.73% per annum.


Alternatively, had an investor invested just . 1,000 per month (through an SIP, for instance) in the BSE Sensex from January 1980 to March, the effective corpus he/she would have accumulated would be about . 95 lakh.


The point is that equities are a long-term capital builder and deserve as much diligence and patience as any other. An equally important corollary is that investment in equities must start as early as possible to allow for compounding to make a sizeable impact.


Investors must also be mindful that investment in equities occasionally occur either out of personal conviction or out of a systematic setup. If it is the former, then the investor needs to be sharply aware of the emotions driving such conviction. Because, more often than not, it is the emotional inference of fear and/or greed that drives the investor to buy and sell, leading to less than desired outcome. On the other hand, lack of disciplined approach to systematic investments can lead to the temptation of altering the investment pattern, size, and allocation ratio depending on the fluctuations of the market movement. This, too, may lead to sub-optimal return. To address this behavioral tendency, a long-term SIP in equity mutual funds is advised.


The investor must also appreciate that an increasingly integrated world has increased the factors affecting equity assets. Consequently, the risks associated with investments in equities, too, have increased. For example, individual direct investors could be hard pressed to research and identify the underlying business of the company they want to invest in. Moreover, business factors like changes in the input cost of a business, cost of capital, labour and taxation regulation, etc, require in-depth research and specialisation.


An investor without ample resource by way of time, experience, and expertise is advised to seek the mutual funds route to equities investment. Equity-oriented mutual funds are one of the most economical investment products, and provide an investor a proxy route to investment in equities. The core advantage of equity mutual fund is the professional portfolio management service, dedicated research, and hands-on market knowledge offered by the fund management team.


An investor in equities may also want to be watchful about the tax incidence of an investment. While the realised gains arising out of investments held for more than a year attract no tax, the realised gains arising within a year attract tax according to the slab rate. The cost and convenience of equity investment is also an aspect the investor should consider. Demat holding and opening charges, along with the STT and trading charges of the broker, eat into the gains made from direct investment. In mutual funds, while there are no entry charges (and no exit charges either, if the exit is made after a year), an investor has to shoulder the annual recurring charge not exceeding 2.5%. To sum up, new investors in equities must realise that effective investment requires a purpose, a plan, prudent risk appetite, and a reasonable time horizon. Investors must also appreciate that outcomes of direct equities investment can be undesirable in the absence of market knowledge, experience, and expertise. The most convenient and cost-effective route for first-time investors is, therefore, equity-oriented mutual fund.

 

Popular posts from this blog

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

Bharat Bond ETF

Top SIP Funds Online   The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it. The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio'). The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations. But does it make sense for you, the investor, to invest in it? Lets find out. What is the product? As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 ye...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now