Invest

Key pitfalls of investment that every investor must avoid.

“The stock market is a device for transferring money from the impatient to the patient.”
-Warren Buffett

Your investment portfolio should consist of those products that match your needs and works towards your financial goals. Investment is a must these days. Because investments allow an individual to create a corpus, but they also enable us to earn a good return on the savings and can even generate regular income if done right. If you are a first-time investor or have been in the investment game for a while, you should consider these points and that will surely help you in your investment tactics and will also maximize your long term returns.

Mentioned below are the few factors that can help you find the right type of investment:

1. Understanding your financial product

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Investment Rules

Follow these rules to improve your investments

“As we look ahead into the next century, leaders will be those who empower others.”
-Bill Gates

Investments are essential in today’s world because earning is not enough. You would be working hard for the money, but that may not be adequate for you to lead a comfortable lifestyle or fulfill your dreams and goals. And due to this reason you need your money work hard for you as well. And this is the reason you should invest. If your money is lying in a bank account, then you are losing the opportunity of earning returns on it. You should spend your money smartly by investing so that you can get profits from it.

Here are the rules of investment one must follow:

  • Have a plan

Before you invest your money, you must be aware of what you are investment purpose. You should set parameters like target return, time horizon, and risk appetite for the asset class, which suits your aims. You are unique, and so are your financial needs, so choose an investment plan based on your specific financial plan.

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Is equity exposure safe?

Equity-Exposure

“Long shots almost always miss the mark.”
—Peter Lynch (American investor and mutual fund manager)

What is an equity fund?

Equity funds generate high returns by investing in the shares of companies of different market capitalization (large cap, mid cap & small cap). They generate high returns than debt funds or fixed deposits. The whole thing depends on is how the companies performance, which results in profit or loss and how much an investor can make based on his shareholdings.

Market Capitalization:

It is the aggregate value of the company based on the current share price and the number of outstanding stocks. Market cap is calculated by multiplying the current market price of the company share with the total outstanding shares of the company.

How does equity fund work?

An equity fund invests 60% or more of its assets in equity shares of companies in varying proportions. It might be the purely large cap, mid cap, or small cap fund or a mixture of market capitalization. The investing may be by value-oriented or growth oriented. Allocating a major portion of equity shares, half will go to debt and money market instruments. This will take care of a sudden fall in the market.

Performance of Equity funds in India:

All most all categories of mutual funds, equity funds deliver the highest returns. On average, equity funds have generated before-tax returns of 15% or more. The returns may fluctuate as per the market movements as well as the economic conditions.
To earn returns with good expectations, you need to choose your equity fund carefully. If you want to invest in Equity, remember the secret is to stay invested for a long period (>5 years).

Features of Equity Funds:

  • 80C tax exemption: Equity Linked Savings Scheme is the only tax-saving investment under Section 80C of the Income Tax Act. With the shortest lock-in period for 3 years.
  • Cost of investment: When one is frequently buying and selling equity shares it often impacts the expense ratio. While currently, SEBI has fixed the limit of expenses ratio at 2.5% for equity funds and they are planning to reduce the rate too.
  • Cost-efficiency and diversification: One who is investing in equity funds can start investing at a nominal amount.
  • Holding period: When one redeems the units of capital funds, one can earn a capital gain. This earned capital is taxable and this rate of taxation depends on how long you stayed invested in equity.

Taxation of Equity Funds:

Capital gains earned on the holding period of up to one year are called short term capital gains (STCG). STCG is taxed at a rate of 15%. Capital gains on the holding of more than 1 year are called long term capital gains (LTCG). LTCG in excess of Rs 1 lakh will be taxed at 10% without the benefit of indexation.

So what is better lump sum or SIP?

1. Systematic Investment Plan (SIP)

A SIP is where the monthly investment happens automatically on the pre-decided date. Where one can start investment from Rs. 500. Where we have to just grant permission to the fund company to deduct the investment from your bank account. SIP gives you the benefit that when the market is high you would be allowed a few units. And when the market is low, you will get more units.

Benefits of SIP:

  • SIP is considered to be a disciplined approach to investment.
  • One can achieve long term financial goal with SIP.
  • SIP can be started with a small amount of money.
  • Reduces risk because of Rupee cost averaging.
  • Timing the market is not necessary.

2. Lump-sum

This method can work over time. Because not everyone is feasible to arrange for a large sum. A SIP allows an investor to invest a fixed amount of money at regular intervals. It also gives an advantage of averaging the cost of units besides providing benefits of compounding. So we can say that opt for SIP rather than Lump sum investment.

You should invest in equity funds as per your investment objectives, your investment capabilities, and your risk-taking ability. Equity funds are not meant for short term investment. Maximum your funds will cook for five years of investment, accepting the versatile market one should invest in mutual funds.

MyWay

MyWay Wealth offers you to invest your funds in Equity. Being a smart investor one should choose the best investment option. One should always opt for investment which matches their financial goals and risk appetite. Equity definitely gives more returns than gold, real estate, and FDs.

Happy Investing!!