If you have opened a demat and trading account then you can invest directly in equities. But the method of direct investment is not better at the beginning of investment. Because for this you should have an understanding of the market.
Investment Tips: If you want to generate funds to meet long term financial needs, then definitely start investing in equity. Because equity can be the best investment option from the point of view of returns in the long term. However, you get assured returns by investing in government’s small savings schemes, FDs and other fixed income instruments. But after minus/adjusting inflation (inflation) and taxes, this return becomes extremely low.
Let us know some important things before you start investing in equities:
Direct or through mutual funds
If you have opened a demat and trading account then you can invest directly in equities. But the method of direct investment is not better at the beginning of investment. Because for this you should have an understanding of the market. At the same time, it is also important that you are aware of the nuances of investing. Which is usually not with the first time investors in equities.
If you invest without understanding then you may have to face losses. Therefore, for common investors, mutual funds are the easiest and safest way to invest in equity. Because in mutual funds, the fund manager with his better understanding invests/invests your money in the shares of different companies.
Investment period
Investing in equity mutual funds will be better for you only if you are investing in it for a long term i.e. at least 10 to 15 years. Because due to market volatility, there is less scope for better returns in the short and medium term. On the contrary, damage may occur.
Which type of fund to invest in?
There are also different types of equity mutual funds. For example large cap, mid cap, small cap funds. As the name suggests, exposure to large cap funds is in large cap companies (companies listed from 1 to 100 numbers according to market capitalization). Similarly, exposure to mid cap companies (companies ranked 101 to 250 by market capitalization) in mid cap funds and small cap funds to small cap companies (all companies after number 250 by market capitalization) .
The volatility i.e. risk/risk in large cap funds is less as compared to small cap and mid cap funds. But from the return point of view, small and mid cap funds may be better. Therefore, before starting investing, you should see how much risk you can take.
If you can take less risk then you should invest in such funds where maximum exposure is in large cap companies. Or in multi cap funds, where the investment is in all three types of companies, large cap, mid cap and small cap. Due to exposure to all three types of companies, multicap funds have higher returns than large cap funds. However, investors who are starting investing at a young age can invest in mid and small cap funds.
Tax exemption
If you also want tax exemption on investment in equity mutual funds, then you should invest in ELSS (Equity Linked Savings Scheme). But this tax exemption under 80C will be available only if you invest in it for at least 3 years. However, the Long Term Capital Gains (LTCG) tax on ELSS is levied like other equity mutual funds. My advice is to invest in ELSS only for the long term and avoid redeeming after three years. Because the investment period must be long for better returns. This means investing in it not only to save tax but also from the perspective of better returns.
SIP or Lump Sum?
SIP (Systematic Investment Plan) is a better way to invest in mutual funds for beginners. With SIP, you get the benefit of averaging. That is, when investing over a long period, the volatility becomes averaging. That means more units are available on the same investment in the period of decline and less units in the phase of uptrend. Secondly, if you invest through SIP, then it also disciplines you in terms of investment and savings.
