Considering the shares owned in a company by an investor, equity is the term that refers to the total among of money one will receive as the company pays off all its debts and liquidates the assets. When you invest in shared, you actually invest in the equity of a company with which you too become a percentage owner of the organization. On being an equity shareholder, one has the right to take advantage of the company’s profits based on the shares one owns.
Kavan Choksi explains two ways through which you can invest in equities:
- Invest in stocks as direct investment.
- Invest in mutual funds which are linked to equities.
Direct investment
The major advantages of direct investment in equities are. If you want to be an equity shareholder in one or more companies, you can open a trading account and then directly purchase the shares of the company. The online trading account will hold your purchased shared in an electronic format, whereas you can do the trading of selling and buying on the online platform through a stockbroker.
High returns
If you make the right pick and take the right position at the right time, you can make significant gains through share trading. However, there is the same amount of risk for loss also, which depends on your knowledge of the market, analyzing skills, and a little bit of luck.
Plenty of options
While you plan to make a direct investment in equities, you have a large universe of equity shares to choose from. Different equities have different associated risks, and based on your risk tolerance, you can invest in large-cap, mid-cap, or small-cap firms. You may pick one which you can identify the potential for growth and help you build your wealth.
Investing through Mutual Funds
Mutual funds have emerged as the most popular and balanced investment instrument over time. These help the investors to build a corpus for their different goals. Some of the major advantages of adopting mutual funds for equity investment are as below.
Professional fund management
While investing in equities directly, you are managing your finds by yourself. In the case of investing through mutual funds, there will be a fund manager who picks up the stocks to invest in based on market studies and statistical analysis and manage your purchase and sales on your behalf. The fund manager keeps a close track of the market movements and places the best accordingly, which can ensure you a better return.
Diversification for balanced risks
Mutual funds also diversify your funds across various sectors. This will help you bring down the risk associated with various equity investments. Diversification will ensure that the risk is equally spread out. Diversification will ensure optimum diversification of the investments and ensure long-term success.
Now you know about equity investments and the two possible methods to enter into them. As Kavan Choksi suggested, you may identify your best approach to investing in equities and adopt it.
