To reach your financial milestones at every stage of your life, you’ll need to have a robust savings and investment plan along with the right insurance cover. Money won’t grow on its own or not grow enough via conservative methods. To push your money towards higher growth, you will have to aggressively choose options that offer higher returns. Investment in equities is one of the best options in this context. However, you may be a little unconfident about this option, given the misconceptions regarding the equity market.
Equity does bring a lot to the table, so there is no harm in going out of your comfort zone and making room for it in your portfolio. Here’s is why it makes sense.
The Growth Potential
Recent data released by the Statistics Ministry in New Delhi mentions that the Consumer Price Index (CPI) in India averaged 117.98 Index Points from 2011 to 2019. This number clearly shows how inflation erodes your savings. Conventional instruments assure you a fixed return, such as upto 8% in case of an FD. However, when you take inflation into account, the returns on this investment suddenly don’t look so lucrative.
On the other hand, returns on equity from shares and equity mutual funds outperform inflation. This is because these investments derive returns from the market directly, which is current and inflation-regulated. Moreover, when you start investing in the stock market or choose equity-backed investments at a young age, you have a greater number of years to see the returns mature without disruption. As per market trends, equity investments are capable of fetching you up to 15% interest return over time. So, align your goals with equities. Start slow, but expand rapidly to gain maximum returns for goal fulfilment.
Return And Liquidity
If the reason you are holding back on choosing equity is due to market volatility, remember that you do not have to be completely dependent on the stock market. Keeping ups and downs in mind, you can start by investing a substantial amount in equity mutual funds. With a fund manager manning your portfolio, your investment is played across the market via varied stocks. Additionally, mutual funds promises higher maturity returns thanks to the power of compounding. So, all the fluctuations of the market are actualised basis the gains to give you access to hefty returns in due course of time.
The liquidity factor in case of equity is also very high. While you can sell and buy stocks at your comfort, you can also break a mutual fund any time you want. There are some mutual funds for which you will have to pay an exit load to access funds from your investment. It would be wise to understand all the aspects while choosing a mutual fund plan for yourself. Also, you can pledge your equity portfolio to service a loan any time you are facing a cash crunch. Keeping this in mind, keep equity as the main asset in your portfolio and shave it off as you age.
You can invest your money in equity on your terms. When buying shares, you can buy as many you want or to trade daily as per your financial strength. On the other hand, you can start a mutual fund going the SIP route with just Rs.500 a month. The diversity you can experience with equities does not stop at the amount you can invest. From choosing a high return fund option to choosing the arena for investment, you can diversify your portfolio as per your needs and preference.
With age by your side, plunge in to the equity arena right now and take advantage of a diverse portfolio to improve on your financial strength.
The writer is CEO, BankBazaar.com