Important Things to Know Before Investing in Equity Funds
Equity investment means money is invested in a company bypurchasing the shares of that company. As Per Indianmoney Review Equity investing is often considered as gambling because ofthe nature of operations. Return on investment is high, but involves a riskfactor. Returns are dependent on market dynamics. It is an ideal investment to earnhigher returns over a short period of time.
Important Things toKnow Before Investing in Equity Funds
Uncertainty is the underlying feature of equity investments.Equity investing means investing in the future of a business. There is nodefined rule to decide which business would succeed or fail. This means, youdon’t know beforehand how your investment will perform in the future. Thismakes it scary, thrilling and risky at the same time.
Stories of great investors might give you the misconceptionthat stock markets will pay you millions in the future if you buy cheap stocksnow. But this is not true. Only an investor will know the real risk involved.Key point to remember is that nobody pays you for doing nothing.
Picking stocks is not easy. Many factors influence the lifeof a stock. Some factors play a significant role while others do not. Decidingwhich factor to focus on is not an easy game. Experienced investors will havethe knowledge to judge which stocks to look for based on the signs. Howeverthis cannot be 100% true.
Decision to buy a particular stock is tough. There areseveral 100 stocks in the national and international market, and nobody canpredict which one out of them will turn out to be a multi bagger. In the formalinvestment set up, fund managers write down the reason for choosing a stock.This helps compare the real success of a stock. Different investors havedifferent motives. For a short time investor, time plays a major role whereasfor a value investor it is the margin of safety that matters. All this contributesto the decision of buying a stock
Analysis of a stock requires expertise and knowledge in thestock market or related educational course. Ordinary investors lack this.Mutual funds hire brokers who in turn hire and pay qualified employees fordatabases to track stocks, sell reports and carry out research. An ordinaryinvestor must utilize publicly available information and do extensive homework.
Equity stocks involve risk. To outlive this risk factor,diversify your portfolio. Build a portfolio and keep track of what it holds andhow much.
Success in equity depends not only on your selection ofstocks, but also on your assumptions. If you recognize a stock in which youinvested is not performing up to your expectations, sell the stock and do noerode your capital. Do not hang on to a stock with false expectations.
Conclusion: Equity is an effective method of investing. Ifyou are of the opinion that individual investing is risky, invest in equitymutual funds. They are less risky. It gives high returns over a short period oftime. However, keep the risk factors involved in mind.
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