Are you investing in equity for a good reason?

Everyone wants to invest a certain portion of their income in equity. People get excited to invest in the stock markets assuming that it will double their money in a short span. However, before investing in the markets one need to pause and reconsider the reason they want to invest in equity. Seeing everybody around you investing in stocks and earning profits may prompt you to do the same too. But you must take time and consider that the market is prone to volatility and can turn bad also. Hence, it is even more unlikely that your investments would fetch good returns in the short term.

Another reason why people invest in the markets is that they might have surplus funds lying around and the desire to invest in the stock markets to earn profits hits them? But beware, do not jump head first into the stock markets if you do not know anything about how it operates.

However, if you truly wish to increase your wealth in the long term and are willing to put some hard work into it, you should take the stock market route for investments. And this is the right time to start investing in equities. Below are five good reasons which you can consider if you want to  invest in the stock markets.

1) Growing economy: The Indian economy is growing at a fast pace. The stock market can be used as a barometer to measure the health of the economy: a bullish stock market indicates a healthy economy and that its businesses are performing well. Hence, investors want to park their funds here to earn dividends and profits. This, in turn, increases the value of stocks. It is like a chain reaction.

2) Avoiding conventional mode of investments: Investments like fixed deposits, PPFs, etc., suffer the brunt of inflation in the long term. For example, you may lock your funds for five years in a fixed deposit with a bank at 7%. However, your returns will not grow in proportion with the inflation rate through such instruments. In such a situation, equity is the best investment as your money grows in sync with the economy.

3) Economical: Stock prices vary from company to company. Nowadays, various new securities and tools with reduced prices have also been introduced to attract more retail investors. Anyone can invest in the stock market. One can start with a systematic investment plan (SIP) into equities with as much as Rs500 per month.

4) Portfolio diversification: You can invest in multiple stocks, selecting from a range of high-risk to low-risk stocks. Design your portfolio to ensure that even if you incur loss in one stock, it gets compensated from profits in others. Here, the overall risk of investing becomes minimal.

5) Effective management: There are many asset management companies (AMCs) in the market that attract retail investments and allocate funds in various stocks. So, if you know only a little about the market, don’t worry. Most fund managers have the requisite technical knowledge and as well as the experience backed by an entire research team. You just need to ensure that your fund manager has a good track record in the past.

With all the above benefits, it is clear that you must have equity in your investment portfolio.