How to Invest in Equity Markets: A Beginner’s Guide
Investing in equity is a popular way to grow your wealth over time. Advice on equity investment can be overwhelming with the level of content available on various platforms. The right choice will always be to follow the guidelines published by genuine, reliable sources approved by the government. Approach financial advisors who are the best equity brokers in India, as Goodwill. This article will discuss the key things you need to know before investing in equity markets.
What is Equity?
How would you feel when you become a percentage owner of a company performing fundamentally strong with huge growth potential? Equity markets does exactly this. The companies provide a part of their shares to the public to buy and own. When the value of the capital appreciates, the investor gains. Dividend is also an additional benefit when you invest in equity. It is best to put money for the long term in equity.
Why Equity Over Other Investment Options?
● Equity investment is always preferred as a better option than banks and post office FDs as it can potentially give better returns than the latter. The return on FD is always decided by an authority. Return on equity, on the other hand, can be improved with increasing knowledge of the fundamentals and technical aspects of stocks.
● Equity also has a profit potential that can beat inflation. While FDs, these days, are not able to give the same result. It is a significant factor that affects the purchasing power of the individual. He/she won’t be able to buy the products as they wish if the money in their pockets cannot beat inflation.
● Picking the right stocks in equity provides a reasonable dividend rate. A dividend is a share of profit that the company gives to its shareholders. It helps the investor get more returns other than capital appreciation.
● In India, there is a regulatory authority for the buying and selling stocks. SEBI (Securities and Exchange Board of India) keeps an eye on individuals and companies from the largest trying to reduce fraudulent activities.
Demat Account and Trading Account
Before investing in equity, you must open a Demat and a Trading account. The concept of a Demat account and a trading account can be confusing. In a Demat account, the medium of exchange is shares of the stock, while in a trading account, the medium of exchange is money. We transfer the amount we plan to invest from our normal savings bank account to the trading account. When we invest this amount in particular stocks, our shares are stored in a Demat account in the depository. Open your free Demat and trading account with Goodwill Wealth Management.
Here are the steps you need to follow to open a Demat account:
- 1. Choose a Depository Participant (DP) – This is a financial institution that holds your shares in electronic format. You can choose any DP that is registered with the Securities and Exchange Board of India (SEBI).
- 2. Fill out the account opening form – This form can be obtained from your DP or downloaded from their website. You will need to provide your information, including your PAN card number and bank account details.
- 3. Submit the necessary documents – You must submit proof of identity, address, and income. This can include your PAN card, Aadhaar card, passport, passport photo, and bank statements.
- 4. Activate your account – Once your account is opened, you will need to activate it by paying the initial margin money and providing your signature.
The Risks of Equity Investments
While equity investments offer the potential for high returns, they also come with a significant level of risk. The value of your investments can fluctuate based on market conditions and other factors beyond your control. In some cases, you may even lose your entire investment. Therefore, it is crucial to understand the risks associated with equity investments before investing.
The following are some specific risks to be aware of:
Market Risk: The value of your equity investments can be impacted by fluctuations in the stock market.
Company-Specific Risk: The performance of individual companies can also affect the value of your investments.
Liquidity Risk: Equity investments may not be easy to sell quickly in some market conditions, which can impact your ability to realize your investment.
Level of Risk
It is advised to invest in equity markets according to your age and ability to take the risk. The risk portfolio ranges from low to medium to high. As age increases, the weightage of risk in an equity portfolio must be reduced. The division of assets into large-cap, mid-cap, and small-cap stocks is also based on the risk you are willing to take. It is advisable to learn the process first and then dive deep into the ocean. Take the initial stages of your investment journey for learning. Also, do keep in mind to use a very less percentage amount of money from your total asset during this period.
The trading account charges a brokerage fee from you. As a beginner, the best option is to choose the lowest equity brokerage in India. In the initial learning phase, you might wish for anything but a huge brokerage fee could even diminish your initial profit substantially. There are brokerage firms, like Goodwill that offer the least brokerage fee.
Keeping Your Initial Goals Simple
People who are entering into equity or any other type of investment might often set huge profit goals. What is the point in setting high-profit goals such as 50 percent returns on equity without strong fundamental and technical analysis? In such cases, the target becomes many times larger than the FD returns, finally losing all the money you have. Hence it is advisable to set the goals as 2 or 3 percent more from the current FD returns to a maximum of 10 percent.
Weightage for Equity in Your Whole Investment Portfolio
Portfolio diversification is the key to sustainable and consistent growth for your assets. Too many assets in equity or any other single asset class can have adverse effects during difficult times such as a recession. Portfolio investment options are Equity (domestic stocks and foreign stocks), Debt, Bonds, Real estate, PPF(Public Provident Fund), FD, SGBs(Sovereign Gold Bonds), ULIPs(Unit-linked Insurance Plans), etc.
Spreading your investments across can balance risk and reward. Further helps to reduce the volatility of your portfolio. How much to allocate in each asset class is also important, also where to invest. Balance this portfolio every six months.
Discipline in Your Decisions
Emotionally driven decisions are in no way going to help you create wealth. Update your strategies as your knowledge increases. Plan to stick to it till a certain period without deviating. For example, making decisions in the heat of the moment. Having a clear goal and fixing the time horizon with short-term and long-term goals are a part of this.
Remember that investing is not a side hustle, rather it is a necessary part of your life. Appreciate yourself for your efforts and steps to grow your hard-earned money. Stay updated with the current trends in the economy. Try not to be swayed by equity stock recommendations offered by anyone around you, such as family or friends. Also, do not get influenced by random influencers. Do your research. Start your investing journey, despite your age, at India’s best equity broker, Goodwill. We provide you with a platform with in-depth analysis and accurate data. The Goodwill mobile trading app and other services help make investment possible at the tip of your fingers. We’ve made investment easy for you. So why wait? Open your Demat account today at Goodwill.