Top 4 Equity Investment Tips for Beginners
4 Equity Investment Tips
People with an allocable surplus who want to invest wisely are often confused and don’t know where to begin.
Moreover, beginners may not be aware of equity investments and why it is an ideal form of investment. Understanding the stock market is one of the most important things a beginner should do. This blog will simplify all the information needed. First, let’s understand what equity is about:
What is Equity?
Equities are shares issued by companies as part of the ownership on receipt of the money thereof. The company’s capital is divided into segments called shares which are further divided among the people who buy those shares.
The company’s Capital is represented by the shares issued which are distributed to the investors who become the owners (technically) of the Company.
An investor will buy shares in a company while expecting to earn some dividends or sell the same shares on Stock Exchanges like NSE/BSE, to get a profit when the prices increase. This is called Equity Investment.
When you, the investor, buy such shares, you invest in equity shares and become the partial owner of that business.
The investor buys the shares when they are at a low price. They will look out for price fluctuations in the stock market and when the price rises, they sell them at a profit. However, this method is mostly adopted by investors interested in short-term gains.
Beginners should understand that such investments are not consumed on the same day. Rather, they are made to receive long-term returns. They need to know how to go after the wealth creation strategy. Goodwill makes it a point to differentiate between wealth creation, preservation, and enrichment of the investment and helps you in all these.
Equity Investment Alternatives
The following equity investment alternatives are best suited for beginners and people new to investing in Stock Markets:
As stated earlier, shares are tokens of ownership of a business. You become the shareholder of the company when you invest in shares. There are designated stock markets where shares are traded if they belong to listed companies. They are the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
As a shareholder, you have to accept both profits and losses of the company. If you manage to buy the shares at a low price and sell them at a higher price, you will gain profit. On the other hand, if the opposite occurs, you will suffer loss.
The potential returns from investing in equity can be high but the risks can be high as well.
Equity Mutual Funds
Equity Mutual Funds are where the money is collected by an investment company, from multiple investors and invested in equity shares across various companies. This method is suitable for those who have less knowledge about trading and have little time to conduct their research.
Beginners should know that it is quite difficult to research on your own as it can be time-consuming and confusing. Therefore, it is best to seek advice from India’s best equity broker, Goodwill Wealth Management, and invest through them in Mutual Funds.
The total value of all a company’s shares is its market capitalization. By measuring a company’s market capitalization, investors can determine how valuable they believe it is. According to the amount of capital they propose to allocate and deploy, equity mutual funds can be further divided into several categories: By measuring a company’s market cap, investors can determine how valuable they believe it is.
1) Large-cap equity funds
Companies that are well-established with steady performance will be able to provide stable returns. This is the best option for budding investors.
2) Mid-cap equity funds
If you wish for well-balanced returns, investing in mid-cap companies is the way to go. Mid-cap companies are listed in the mid-range of market capitalization. So, your risk-reward ratio is well-adjusted.
3) Small-cap equity funds
As a beginner, you might want to wait to invest in small-cap companies as they are the most unpredictable, have small market capitalization, and can be quite risky.
4) Multi-cap equity funds
If you want to diversify your portfolio, you can consider investing across multiple market capitalizations.
Equity Futures and Options
There is another option for you to invest in equities on a short-term basis: by trading them in the derivative market. A derivative is a secured way of trading where you can purchase an underlying asset based on a pre-determined rate at a future date. It is mostly used as a “Hedging Tool” to minimize loss.
Arbitrage Schemes involve the buying and selling of the same stock simultaneously but on different stock exchanges to gain profit from the price difference in different markets.
Why you should invest in equity investments
Equity investments help you attain financial goals and hedge inflation. Traditional methods of investing like FDs are not sufficient to secure your money from inflation, although it is risk-free.
Moreover, equity investments have the potential to outperform returns offered by most assets like Gold, Real Estate, Debt, and so on. They show the promise to perform better than any other type of investment.
Equity investment is very lucrative for people looking for long-term investment and those who want returns at a faster rate. The goal is to increase the value of the investment by capital gains and shares are capable of giving both capital gains and dividends.
How to Start Investing
The following steps will help you get started on your investment journey:
Plan for the long-term
As a beginner, you may get excited about investing and receiving returns. However, you need to realise that investing on one day and selling on the next day, does not make you an investor.
A new investor should understand that before investing they need to stay committed for the long term. You must prioritize your money according to your needs. Know that you should not invest the money you need in the next 12 months to 5 years. Once you have set aside an amount for investing, reassure yourself that this money will only be used for investment purposes. You have to commit to the idea of investing consistently, no matter how the stock is performing in the market.
Planning for the long-term is a better option anyways because the short-term contains too many uncertainties and risks in stock prices.
Understand the type of Investor you are
Ask yourself how much risk you are willing to take and what type of investor you are. Are you willing to do extensive research or are you not interested in doing the homework? Do you want to be actively involved in managing your money growth?
Before starting your journey into an investment, make sure you answer these questions and outline your investment goals. Establishing why you are investing is the most important thing a beginner can do. Although, the reason is obvious: to maximize return on investment.
It will also prove beneficial if you try to have an understanding of how the stock market and price fluctuation work. As a long-term investor, you should not look at the dip in prices as a loss but rather a gain because you can purchase stocks at a lower price.
Select a broker
You cannot start investing without having the relevant accounts needed to carry out trading and investing. Before approaching a brokerage firm, make sure you have a bank account ready.
Opening a Demat account and a Trading account with a brokerage firm that offers the lowest equity brokerage in India is essential. You also need to present your KYC papers.
Goodwill Wealth Management is one of the best share brokers in India. Make use of our expert guidance, learn about which stocks are performing well, and get regular market statistics. Moreover, you can avail our free tutorials and lowest brokerage charges.
The key to a successful portfolio is diversification!
It may seem comfortable to keep investing in the same stocks or the stocks that performed well in the past. However, when it comes to investing, you must invest in multiple avenues. Whether that involves investing in multiple companies or using multiple investment options, intelligent investors will not limit themselves to investing in one sector.
For example, if you buy expensive stocks in energy, and the stock market crashes, it will erase the value of equity investments, affecting your entire portfolio. Therefore, it is better you invest in different sectors like travel, tech, entertainment, and so on. The same rule applies to investing only in large-cap equity funds. You are free to invest in multiple companies with different capitalizations. This is the best way to minimize risks in Equity investment.
Essential Tips for Beginners
1) Only invest in businesses you understand
2) Avoid high-volatility stocks until you become used to investing
3) Don’t go overboard with diversification
4) Keep track of your investments but don’t watch over them like a hawk
5) Don’t always chase after the best stocks: Wait for your turn on your terms
6) Do your basic study before buying and selling shares
7) Never buy in bulk, do it in stages. Follow the “Buy Low, Sell High” concept
The Bottom Line
You can grow your wealth if you educate yourself, do your homework, and follow the thumb rules of investment. That way, you will have a higher chance of getting better returns. Even as a beginner with a small amount of money, you can still start investing. However, remember that it involves many steps from choosing the right investment to selecting the right brokerage firm. Having a genuine and transparent broker is a must and beneficial as it helps monitor your investments and ensure a timely Payout and easy Pay-in process. So, now that you have read this blog, you can now open a Trading and Demat Account with Goodwill in under 10 minutes and seek help whenever you need it. Avail free online/offline training on markets as well.