Equity- Take Risk but Systematically

By Abbasali RJ Advisory
If you ask to people what is equity? The answer may be Stock Market, Nifty, Trading, Share Bazaar etc. Tell me this is the right answer surly answer is No! Simply one can say Equity means either investing in business or becoming a share holder in any company. Thus taking a risk is compulsory for investor investing in equities, but it is more important to understand the fundamentals of business in which you
are going to invest. Listed are some basic strategies to follow for investing in Equity.

Invest through mutual funds
Equity is not luck by chance or casino for investor. You should understand the different between investor and trader. First clear your profile of small investor you can start with small amount in mutual funds through Systematic Investment Plan (SIP) because you can invest certain amount of your income in mutual funds through SIP mode. One can select Diversified Equity mutual funds and make goal base investment to get best return over a long period of time. There is two most advantage of SIP one is cost averaging and second is discipline investment with regular interval time like monthly. Here I would like to share one experience of a Mumbai based financial planner who made wealth through SIP he started in 1995 when his first daughter born. He invested 2.12 lakhs in these 212 months and the fund value is around 24 lakhs now! Yes that is the power of mutual fund SIP. So start at early age and make fixed goal like Buying home, Car, Child Education, Marriage, Retirement Planning to creating wealth from equity SIP.
Diversified Your Portfolio
Remember this quotes don’t put all your eggs in one basket to diversify your portfolio. You can diversify your portfolio class in different asset through Asset allocation strategy. Equity allocation should be according to the investment objective, age, risk ability, income and time horizon of investments. Asset allocation should be reviewed regularly and if there is a need for change, it should be done immediately.
Dos and Don’ts while investing in Equity

  • Choose diversified mutual fund schemes from best performing schemes.
  • Be fearful when others are greedy and be greedy when others are fearful.
  • Take advice of Financial Advisor or Financial planner before investing.
  • Don’t try to make money through direct trading or speculating in stocks or derivatives market.
  • Don’t check your portfolio daily it should be reviewed once in a six month or a year.
  • After all it takes time to grow your money, Give time to the market rather than timing market.

Debt Mutual fund- Understand this complex word !!!!

Mostly Investors don’t know about the Debt Mutual funds which is very important part of Mutual Fund industry. Retailers investing in equities for short term which is very risky for short term and investing in debt (Bank FDs, Post savings) for long term which should invest for short term. One can also invest as per time horizon and take dual benefit of Tax efficiency and asset allocation in portfolio. Today I would like to write something
basic would like to write something basic about Debt funds which can help investors to take advantage from various debt funds.

Here are some basics on how one can choose debt mutual funds scheme

Liquid Funds: One can compare these funds against savings or current bank accounts. Simply you can put any time you want or can exit when you need. There is no entry load or exit load in these funds. These funds provide good liquidity and low interest risk. Some mutual funds are also offer ATM card to individual investors for withdraw small amounts from liquid funds. So every Investor can park their surplus funds lying in savings or current bank account in liquid funds.

Ultra Short Term Funds: These funds are similar to liquid funds but time horizon to investment should be minimum one month. Howe ever you can call liquid plus funds. One can also compare this with short term bank Fixed Deposit. So Investors who think short term savings options can park their funds for one to three month horizon.
Short Term Funds: Simply investors looking for Bank FDs can invest their funds in short term funds. Such funds are more tax-efficient than FDs. While choosing a fund, the most important factor you should look is the credit rating of the debt instruments in which these funds are parking their corpus. One can consider investment period in such fund are from 6 months to 2 years.
Income Funds: Long term income funds are combination of government securities, certificate of deposits, corporate bonds and money market instruments. Such funds are managed actively and try to manage the portfolio based on interest rate movements, while at the same time keeping the portfolio credit worthy. So you can think to invest in these funds only with guide of expert advisors only.
Gilt Funds: Gilt funds are predominantly invested in government securities (G-sec). Since Gilt funds are more exposed to rise or fall in interest rate, long term gilt funds take highest impact of interest rate movement. Investors can choose between short-term and long-term Gilt funds depending on their investment horizon.

Fixed Maturity Plans: It is more known as FMPs in financial market and it is close-ended scheme that invests in fixed income securities and remains invested till its maturity. Portfolios of FMPs include CD, CP and other fixed income securities as per funds objectives.

The above basics are only for knowledge of Debt funds. One should take advice from expert before investing in any types of funds and also look in to factors like past performance, fund manager, mutual fund corpus and expense ratio of the fund.