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Equities best asset class to beat inflation, here’s why; Do not ignore these 7 rules while investing

Equities is also the best asset class for investors that have a specific future need.

Equities best asset class to beat inflation, here’s why; Do not ignore these 7 rules while investing
Equities are one of the best asset classes to beat inflation with a margin and thus create wealth over a long period. Image: Pixabay

By Manish Jain

As fund managers, we often come across investors who have never invested in equities. These kinds of investors are inquisitive as to why they invest in equities. They often have the perception that equities are high risk and hence the aversion. What often people do not realise is that equities are one of the best asset classes to beat inflation with a margin and thus create wealth over a long period. The one asset class that allows you to participate in the growth journey of other entrepreneurs and become a part business owner with a smallish investment. It is also the best asset class for investors that have a specific future need, for example, someone in his 30’s looking to save for his children’s future education, someone in his 40’s looking to save for retirement, someone in 60’s looking to create a retirement corpus. You can always start small and keep adding as per the cash flow.

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However, there are some golden rules to investing which often people ignore:

a) Know your investments: whenever you decide to invest, always do your homework well. Know the company in and out. You have to meet the management, you have to read the annual report, and know the balance sheet very well. Look out for warning signs.

b) Look ahead: have a good sense of the industry growth prospects and the company’s leadership within that. The growth rate, in the future, should be steady and strong. Hence, pick an industry with deep under penetration.

c) Know yourself: The first question is: what’s your risk profile? A high-risk investor should be willing to bet on riskier assets as compared to a more conservative one. This again entirely defines your investment targets, holding time-period etc.

d) No talking: Never invest on the basis of hearsay. You will always come across people who tell you – invest in this stock, invest in that script. Never follow anyone blindly. You will eventually burn yourself. Use your own analysis to determine if you should or should not invest.

e) No Junk: Always look to invest in quality stocks. Always stay away from bad Corporate Governance companies. They usually are a ticking time bomb that will erode a large part of your wealth when it goes off. In the last few years, the Indian equity markets have seen several of these time bombs go off, shaking the faith of investors entirely.

f) It’s all about timing: Equities is an asset class meant to be long term thus ensuring that you create wealth. Never have a high churn, and never invest by timing the market. Always try to stay invested in the markets from a long-term perspective.

g) Swim against the tide: never lose hope in tough times. Always be greedy when everyone is fearful and vice versa.

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(Manish Jain, Fund Manager, Coffee Can PMS, Ambit Asset Management, Views expressed are the author’s own.)

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