With a wide variety of investment vehicles available in the market, it can be challenging to select the right one to invest your hard-earned money. From company stocks, gold, real estate, bank FDs, debentures and bonds, to mutual funds and more, there are numerous avenues for investment.
But even before you decide the right investment scheme, the first task is to determine if you are looking to invest in equity or invest in debt. Most investments are typically categorised between debt investments and equity investments. For instance, if you invest in an equity-based investment, it means you are directly or indirectly purchasing company stocks, and your returns will be related to how that companies perform. Say, you purchase 100 shares of a leading tech company; here, your returns will be based on the stock dividend which the tech company will pay and the rise or fall of the value of the company shares. Equity-based investments can be risky. And because of its high-risk factor, they typically offer a higher return rate in the long run.
On the other hand, when you invest in debt, you lend money to an individual, a company or a government establishment. With debt investments, your returns may not be directly related to how the borrower performs. For instance, if you purchase corporate bonds worth Rs. 10,000 and the company makes a profit, the returns will be the same as if the company had earned no profit at all. Debt-based investments are considered stable. And hence, they earn a low rate of return.
As an investor, you aim at profiting from your investments. However, to gain optimum profit, you need to analyse your risk profile. Once you know that you can choose between the two avenues once you know which option offers what benefits. Hence, it is essential to know the difference between debt and equity capital to get the best out of your investment.
Most people assume that all mutual funds are alike. On the contrary, there are various types of mutual funds, and primary among these are equity funds and debt funds. The chief difference between equity fund vs debt fund lies in the way the money is invested. When you invest in debt funds, you are investing in fixed income securities. On the other hand, equity funds primarily invest in equity shares and related securities. Equity funds and debt funds have sharply contrasting features that decide how the respective schemes invest and behave, determining their outcome.
To ensure you receive the best out of your investment, look into asset allocation. It can mitigate risks and help you enjoy the benefit of diversification, while at the same time offering you control over your assets and investments.
Asset allocation is a strategy an investor uses to structure their portfolio. Depending on your financial goals and risk tolerance, you can spread your investments between equity and debt. For instance, two friends may have the same financial goal but different asset allocations. While one may have a greater risk tolerance and thus be inclined towards assigning higher resources to equity capital, the other with a lower risk tolerance would look towards debt investments after evaluating the risk and capital needed towards the goal.
Wealth creation requires continual and planned investments to determine your financial goals. It is wise not to place all your eggs in one basket; financial experts advise allocating investments among various asset classes. As a critical strategy that can lower your risk and potentially enhance your returns, it is vital to understand debt-vs-equity and how it can work for you.
Striking a balance between equity and debt is a powerful concept that is mostly ignored. Regardless, it is easy to execute. Depending on the time frame of your investments and the amount of risk you can bear, you may want to maintain a specific portion of your financial investments in equities and the rest in debt and fixed income. This means that if the proportion of a particular asset class veers away from the desired ratio, you can move your investments from that asset class to another one to balance your portfolio.
Accurate asset allocation is critical to financial empowerment. Prudent asset allocation requires you to answer
• Where you should invest?
• How much do you need to invest?
• How can you invest?
When answering these questions, you identify asset classes and the amount you wish to hold in your investment portfolio. Here, one’s age becomes a critical factor in asset allocation as it changes according to the investor's life stages. For instance, a young investor may have a different financial goal as compared to a middle-aged investor. With regards to long-term financial goals, asset allocations must be adjusted periodically based on market conditions and the investor's age.
Typically, equity-based investments are pegged to provide higher yields than debt-based investment. If you are considering equity in the form of stock investment, it requires careful financial analysis to gauge the health of the company. Typically, it can prove beneficial to examine the balance sheet and cash flow statement of the company, and its profit and loss account. Analysing a company's financial health can be crucial in making smart equity investment decisions. Doing so can help you to know the company's performance and compare it with its contemporaries in the same industry.
On the other hand, while debt-based investments may offer lower returns, they are critical and serve useful purposes. For instance, they are often used to maintain one's money temporarily while waiting for a suitable equity-based investment.
The goal of allocating your assets is to get a return on your investment while managing and controlling the risk at the same time. That being said, there will always be market risk, and it can be impossible to eliminate risks altogether. However, with intelligent asset allocation, you can cut down investment risks, particularly, risks that come with just one specific investment. For example, if you invest entirely in the shares of one company, it could make you vulnerable to the risks that the particular investment could reduce in value. By diversifying your finances, you eliminate this risk while giving your investment the opportunity of making money with one asset class even if the other is declining.
It is always an excellent time to look into your asset allocation and understand if your investment portfolio is where you would like it to be. For example, if you observe that your current portfolio is heavily dependent on equities, you may want to consider adding debt investments. You can merely purchase more of debt investments such as debt mutual funds or exchange one asset for another until you have accomplished your expected allocation.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
It is said that well begun is half done. But what about the other half? Smart investors like you know that their job does not end with stock selection or building a good portfolio. That is just half of the job done. To ensure wealth creation in the long-run, you need to monitor the stock portfolio on a regular periodic basis. But does that mean that you need to daily check the stock prices? The answer is a loud No. Read on to know how you can monitor your stock market portfolio in a sane and effective manner.1. Keep yourself updated Remember when your parents or teachers would ask you to keep yourself updated with current affairs? Well, that will pay off even while monitoring your stock portfolio. You should read up about the company and also any new developments in the industry. This will ensure that you are abreast with any policy revisions, regulatory changes or any macro-economic factor that might impact the profitability of the sector or stock portfolio. You do not need to rely only on newspapers. You can leverage technology for this task. Google Alerts make this task easier and more real-time. Especially for small or mid-cap companies which may not enjoy wide coverage by mainstream media. You can set Google Alerts for companies in your stock portfolio and enjoy information at the click of a button. Many financial service providers also provide important news and market highlights on their portals. 2. Check out corporate announcements Listed companies need to inform the stock exchange about all important events or company decisions that may impact their stock price. This could be any new acquisition, employment or resignation of key/senior personnel, etc. You should keep an eye out for such corporate announcements. This information is easily available on the company’s as well as the stock exchange’s site. Some companies also inform the shareholders about such corporate announcements via emails. Ensure to go through the details of corporate announcements as they will help you to monitor the stock portfolio. Moreover, it can influence you to buy more or sell from your share portfolio.3. Go through the company results Indian companies release their results on a quarterly basis. It is important to study the quarterly performance reports of your share portfolio. However, the important point is not to get overly concerned if the results are poor in a few quarters. Each company goes through ups and downs. The important factor is consistency. So, do not go into panic (and exit) mode if you notice a dip. Try to analyse the reason behind the poor performance and look at the overall economic scenarios before taking any decision. Continuous poor results (especially when the economy is doing fine) is a sign that you should consider removing that investment from the stock portfolio. Annual reports also contain information about the company’s future growth plans or strategies. This can influence your decision to stick around or bid adieu to their stocks in the long-run. 4. Observe changes in the Shareholding Patterns of promoters Companies declare their shareholding pattern on a quarterly basis. These details are published on the company’s and stock exchange’s website. Shareholder pattern can be a great indicator of the overall health of the company and its future. While analysing the changes in the company’s shareholding pattern, you need to focus only on the promoter’s shares. Promoters increasing its stake in the company is a positive sign. Promoters have access to the most pertinent and intimate information about the company. Hence, they will go for a higher share in the company only when they feel that the prospects are good. On the other hand, if you notice that there is a consistent reduction in the promoter’s shareholding, take it as a red flag. Try to figure out the reason behind the same. Sometimes, it may so happen that they sell their stake to raise funds for some personal exigency. But such events are not usually recurrent in nature. Hence, do a thorough root-cause analysis. If you feel that the promoters are trying to move out of the business, it is a good enough indicator for you to follow suit. 5. Look if promoter’s shares are pledged When promoters fall short of financial resources to meet the business’s working capital requirement or need to fund another venture, they can pledge their shares for loan money. Their shares act as a security or collateral for the borrowed funds. Like the shareholding pattern, companies need to disclose the pledge details of the promoter’s shares on a quarterly basis. You should follow this information and look for any alert signs. Generally, an increase in the promoter’s share pledging is seen as a negative indicator. It indicates that the business is under financial stress. If the promoters are not able to repay the loan amount, the lender can sell the shares in the open market. This will adversely impact the market share prices and bring down the value of your stocks portfolio. 6. Credit Rating Whenever a company raises debt, they need to get themselves assessed and rated by any of the accredited credit rating agencies (CRISIL, ICRA, CARE, India Ratings, etc.) These agencies review the company’s financial health at least on an annual basis and publish the information on their website. Along with the rating, they also give a summary document which gives an overview of the strengths and weakness of the concerned company. You should review these credit rating reports. They are an easy way of tracking the financial well-being of a company. If you notice a rating downgrade, take it as a serious matter and analyse it in detail. It can significantly help you to save or grow your hard-earned money. Now you know what are the “DOs and DONTs” when it comes to monitoring your stock market portfolio. But still, if you feel that you need some support, don’t worry. Help is just around the corner. Many financial service companies collate all these data points and publish it on their website. This is highly useful for readers as all the relevant information is available in one commonplace. Also, their in-house analysts study the available information and give their expert opinion on the possible trends, etc. One such service provider is IndiaNivesh. It is a full-fledged financial solutions organization and offers a range of services in the domain of mutual funds, equities, derivatives and commodities, insurance, strategic investments, wealth management, etc. IndiaNivesh’s team has a collective experience of 300 years. Their in-depth understanding of the Indian markets, ability to customise solutions and leverage technology gives them a clear edge. So, next time you find yourself wondering – How can I monitor my stocks portfolio? Reach out to the expert team at IndiaNivesh.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Very often, you hear people making a fortune by making investments in the share markets and get lured to invest all our savings in it. Without a doubt, share market investments have helped investors grow their wealth and achieve financial goals. Investing in the stock market is essential for long-term wealth creation, as the returns generated by equities in the long-run have consistently outperformed the returns generated by any other asset classes, but investing all your money in share market is neither wise nor advisable. Shares are extremely volatile and carry a high degree of risk. If you are a beginner in the share market and the success stories of others have made you consider shares as an investment option, it is important to understand that there is no quick and easy way to make money in the share market overnight. Investing in the share market wisely requires you to have patience and also an understanding of how the stock market works. Why should you invest in the share market?1. Potentially higher returns which help beat inflation Equity investments have the potential to generate higher returns as compared to other investments in the long-run. One of the biggest challenges in the investment world today is finding investments where returns beat inflation.2. Dividend Income At the end of each financial year, a company declares dividends to be distributed to shareholders in proportion to their holdings, from the profits earned in that year. Thus, apart from long-term capital appreciation, investing in shares entitles you to the dividend income.3. Liquidity The shares are listed on the stock exchange and can be bought and sold through the exchange platform seamlessly. Share market tips for beginners If you are a beginner in the share market, here are few important stock market investment tips for you to help you guide with your investments1. Define your investment objectives Before considering investing in shares, or for that matter any instrument, it is important that you clearly define your investment objective along with the time frame for it. Investments in the stock market have the potential of higher growth in the long-term but are the extreme volatility in the short-run. If you are looking at investing your money for a fairly long time, you will benefit tremendously by investing in shares as compared to other less volatile assets. As stock markets are volatile in nature, investing for short-term investment needs is not advisable. 2. Assess your risk tolerance When it comes to investment decisions, assessing your tolerance to risk is extremely important as it is individual for each investor. Share markets are volatile and your ability to withstand the fluctuations in the market is crucial. If your tolerance to risk is low, you are likely to get anxious about your investments; you are more likely to make emotional decisions about investments rather than logical decisions. However, once you start gaining more knowledge about stock market investments and also understand volatility, your perception will evolve considerably and allow you to take more analytical decisions. 3. Understand the basics of Share Market Before you start investing in the stock market, it is important for you to have basic understanding of the stock market and the individual securities in the stock market. Getting familiar with financial terms such as P/E ratio, EPS, CAGR, etc. stock selection strategies and stock order type will help in the research and selection process of stocks.4. Pick the right stocks Investing the shares is easy, but being successful with your investments requires effort. Whether you are seasoned investors or a beginner, stock selection plays an important role in determining the success of your investments. You should do proper research and analysis of the stocks that you are looking to invest in. Various aspects such as financial soundness, quality of management, competitor’s performance, the competitive advantage of the company will help you understand the strength of the company. You should invest in fundamentally strong companies for potentially higher returns. 5. Do not let emotions drive your decision The performance of stocks to some extent is driven by market sentiments. If the market sentiment is bearish, it tends to influence the stock price negatively even if the fundamentals of the company are strong. In such situations, long-term investors should not sell their investments just because the market sentiment is negative. Once you invest in the stock market you should not get influenced by short-term price changes of the securities on the account of speculation, rumours and in general the market sentiments. 6. Keep your expectations real All of us want to achieve the best possible returns from our investments. But at the same time, it is equally important to be realistic about the return potential. Even though some stocks have generated over 100% returns for investors in the past, it does not mean that every investment in stocks will fetch you similar returns. The idea of investing in the stock market is to have positive returns on your savings which can beat inflation in the long-run and help you achieve your financial goals with ease. 7. Diversify your portfolio Diversification is extremely important to optimise the returns on your investments. The basic tenet of financial planning is to have a diversified portfolio in different asset classes to achieve your investment objective by not relying on the performance of a single asset class. Even in the case of shares, you should diversify your portfolio in shares of different companies, sectors, and industries to avoid relying on the performance of one sector. 8. Invest only your surplusYour investments in the stock markets can fetch you high returns in the future. However, unlike fixed-income investments such as bonds and FDs, returns from the stock market are not guaranteed. The higher the chances of returns, the higher are the risk involved. Hence, you should only invest the surplus funds you have into the stock market without compromising on the other investments such as your life insurance, health insurance, emergency funds etc. The final word Shares should be a part of your investments, as they offer huge growth potential, but they can’t be your only form of investment. You need to diversify your portfolio in various asset classes to get maximise your returns and minimise risk for your investments. Your investment objective, risk profile, time horizon all play an important role in ascertaining how much can you and should you invest shares. If you are wondering where to start, then just get in touch with our financial experts from IndiaNivesh to guide you with your investments.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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