Invest in Equities

Everyone makes money in equities, but wherever I put my money, I don’t make money. Does this ring a bell? Historically the equity market has given a return of around 17%, but this return has always been over long periods of time. If you take yearly rolling returns, they would mostly be positive only if you have invested for 7 years or more. That does not mean you do not make money if you invest for a shorter period. Just like Real Estate, equities also go through their cycles, the longer you stay invested, the more the chances you make money. But we are human beings, we are not ready to stay invested and the reason for this is, it is easy to exit. You would not have done the same with real estate, this is because of the amount of hassles involved with registration and taxation, whereas in equities, it is easy, so you try to make a quick buck or track on a daily basis.

Over the last 3 decades, equities have outperformed gold, bank deposit and real estate by a handsome margin. Post tax the returns are even better. Now that we have seen that equities give better returns and you want to make the money, how do you go about? Yes, you have your work to be done and you do not have the time to do research. One way out is to invest in a good mutual fund scheme. The returns would be a little lower that what you would have got, if done directly in equity, but the risk would also be lower. Go for two or three schemes, one large cap, one mid cap and a small cap fund. This way you would diversify your risks as well as participate in the growth of small and midcap equities. The fund managers will be doing all the research for a very small fee.

If your risk taking capacity is low go for a balanced fund. In addition to investing is equities, these funds also invest in fixed income securities, to give stability to the portfolio. The returns in this case would be a little lower compared to equity funds. If you do not have any risk taking capacity, then go for a pure debt fund. The benchmark should be as follows, investment horizon, 7 years or more, go for equity, 3 to 7 years, balanced funds and less than 3 years debt funds.