Investment Plans 392 views October 21, 2021

India’s equity market has been scaling new peaks over the last year or so. At the start of 2021, the BSE Sensex crossed 50,000 points for the first time, creating euphoria amongst investors. And within nine months, it has gone past 60,000, way more than 25,000-30,000 that was the case when COVID hit India for the first time in 2020. Such a stupendous growth comes at a time when stock markets of other countries are struggling amidst upside risks to inflation aided by the steep hike in commodity prices. India’s stock markets even defied the second wave of COVID that saw people scampering for oxygen without much avail. The bull run, which saw the market growing at an astounding rate of around 80% in FY 2020-21, made equity investors richer by INR 89.95 Trillion.

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So, what has made India’s Bull Run the ‘Talk of the Town’? Well, a lot of factors contributed to the same, including strong corporate earnings and stimulus push from the existing dispensation. So, if you want to take a plunge with equity investments but have been waiting for the right advisory to do so, you’re at the right place! Here, we’ll show you the same that you could use to good effect. Let’s get started!

Let’s Have a Brief on Equity Investments

Equity investments refer to parking money in stocks of companies and equity-related instruments. The movement of stocks depends to a large extent on the performance of the companies issuing the same to investors. A sustained rally of stocks means the companies are doing exceedingly well due to both internal and external means. While companies can manage internal means by making swift changes to their policies and modus operandi, external means are beyond them! That’s where the macroeconomic condition of the native country comes into play. The stance adopted by the government on the economic front impacts the performance of companies and their stocks. Although weak global cues can lessen the effect of strong domestic cues a touch, investors would most likely be smiling!

If we talk about India, the government here is committed to continuing with the stimulus support that it started providing post the COVID outbreak in 2020. Recently, Finance Minister Nirmala Sitharaman affirmed it while speaking to reporters in the US. Stock markets of India are expected to continue scaling new heights from the stimulus assurance provided by the Finance Minister. So, it’s time to capitalize on India’s Growth Story and make ourselves truly Atmanirbhar, a popular Hindi term for self-reliance as coined by Prime Minister Narendra Modi.

The Environment is Conducive for Stock Investments, But How Should You Begin Your Equity Journey?

Scaling highs in an equity journey depends a lot on your ability to manoeuvre through highs and lows of the broader market. That demands you to be updated with the market trends and make swift changes to the portfolio. To be expecting all that in someone new to equity investments seems unfair given the fast-changing market dynamics. So, if you don’t have that expertise, stay away from investing directly in stocks. Instead, take help from fund managers who with their years of experience can propel your equity investments to new highs over time. You could either trust mutual funds or unit-linked insurance plans (ULIPs) to get such services. While mutual funds only serve investment purposes, ULIPs do an extra by securing the future of your dependents in your absence. So, see your requirements thoroughly before choosing between the two.

Which Categories of Equities Should You Invest in at Different Times?

Equity investments demand you to stay there for long to get rewarded. Short-term investors would better search for other options as equity returns can be either too high or too low in the short term. A long vigil studded with a high equity investment discipline helps investors elevate to the top. But even if equities can take you to unimaginable highs, let’s not go bang-bang from the beginning! Be steady and lay ground to keep reaping rewards. So, while starting, look to invest in the stocks of top companies having strong business fundamentals. These are large-cap stocks where you can route your money through mutual funds or ULIPs. Both these come with large-cap fund options. Upon choosing the same, you could have that stability going in your portfolio.

Once the base forms, you could think about changing your investment strategy a bit by betting on small and mid-sized companies having exhibited tremendous growth over the last 3-4 years. The best way to do so is by choosing multi-cap funds that invest across market capitalizations. A diversified portfolio ensured by investing in these funds helps you create wealth systematically despite risks involved in the journey. Yes, your risk appetite has to be enormous when looking to create wealth through equity investments.

Even Conservative Investors Could Think of Equity Exposure

Investors with a low-risk appetite don’t normally invest in equities as they don’t feel at home seeing the ups and downs involved in the same. Instead, they prefer the safe option of bank & postal deposits, as well as debt funds. Well, debt funds are better than other conservative options. While debt funds can deliver returns of around 8-10%, bank and postal deposits are offering a mere 4-7% return. But given how inflation erodes the value of money over time, sticking to debt instruments alone too won’t make you feel secure! So, diverting some money to equities and earning a fair amount over the same would be the way forward.

How Should the Age-wise Equity Investment Allocation be?

As expressed above, equity investments suit the ones with a high-risk appetite. But your risk appetite does not remain the same throughout your lifecycle.

So, when you are in your 20s or 30s, you could take greater investment risks compared to years after. At that time, you could allocate 80% of your entire investments in equities. Hopefully, that would help you accumulate significantly high by the time you hit your 40s.

At that time, your risk appetite may lower a bit owing to much larger responsibilities that you may have to bear. To strike a balance, you could offload your equities by some 30% and invest the remaining in conservative instruments. You could continue with this asset allocation strategy till you retire.

After that, the regular income would most likely stop for you. The risk appetite might lower even more at that time. Even then, equity investments are warranted owing to their high-return potential. You could choose to invest the lump sum amount accumulated through the means discussed above in the Systematic Withdrawal Plan (SWP), a popular feature of mutual funds. With the SWP, you would get a predetermined amount every month to sustain your lifestyle. You could also put some in debt instruments offering you monthly income.

Note – Return and Sensex data are sourced from various news journals, including Livemint.

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