The main benefit of investing in equity is the prospect of increasing the value of the principal amount invested.
For instance, if one wants growth over the long term, one has to invest in equity. It is the only asset class with a consistent proven track record.
Other than that, investments in equity funds offer investors diversified investment options, in multiple asset classes like equity, debt, gold, etc. for a minimum initial investment amount.
Industry experts say diversification is also necessary within the equity portfolio, as not all money can be invested in just 1 or 2 stocks. An ideal equity portfolio, according to experts, should be diversified across at least 10-20 stocks.
Here are a few things to keep in mind while investing in equity;
· Equity as an asset class is meant for the long-term financial goals of any individual. Long-term, wherein the investor has an investment horizon of 5 years and above.
· If one invests their money in equities for the short term, the value of the investments can fluctuate a lot in the short term for months or even a couple of years.
· For long-term objectives such as a retirement fund, college fund, and long-term wealth creation, investing in equity makes sense where beating inflation is the key requirement.
· While investing in equity, choosing a good portfolio of equity mutual funds is necessary.
· Experts say as investing in equity is a complex exercise and various factors need to be considered, outsourcing the decision of choosing the best funds to a good advisor is the ideal choice.
Where should you invest?
If you are planning to invest in short-term equity funds, experts say liquid assets are one’s best bets. Liquid assets should be looked for short-term parking of surplus money.
Bond funds, on the other hand, carry interest rate risk and credit risk. Note that the price risk for bond funds is typically much lower in comparison to equities.