Investment Options for Beginners: How to Start Investing in Equities
An equity means the ownership in a company and equity share refers to a unit of ownership. A company issues equity shares for the purpose of raising capital and these shares are then traded on various exchanges.
What Is Equity Trading?
Equity trading is the selling and buying of equity shares. The trading is carried out digitally and would require a trading account to buy and sell the shares and a demat account to hold the shares. In India, BSE and NSE are the two markets for equity trading.
Features of Equity Trading
It offers better returns compared to many other investment options.
It serves as an ideal hedge against inflation
It offers fixed income through dividends which are paid periodically
It exposes the investment to risk of loss because of the fluctuation nature of the stock market
Process of Equity Trading
Open a Demat account and a Trading account.
Select the stock you want to trade based on its price and potential for profit.
Do a thorough fundamental analysis to ascertain the stock’s actual value, its potential to offer profit and risks associated.
Once you are satisfied that the stock fits your investment objective, you can go ahead and execute the trade.
How to Manage Risks?
By placing a stop-loss order, you can safely manage your equity trading. It allows you to exit the trade when the price reaches the limit set by you, thus preventing the losses.
You must always research the stocks thoroughly before investing as historical performance is one of the key indicators that you need to analyse while making an investment decision.
Disclaimer: The information provided is for educational purposes only. Please seek expert advice before making investment decisions.
Investment Options for Beginners: SIPs, ELSS, and Index Funds
A mutual fund can be broadly categorised into SIP, ElSS and an Index Fund. Here is a beginner’s guide to understanding these categories and their types.
What is SIP?
A Systematic Investment Plan (SIP) is an investment plan that lets an investor periodically invest fixed amounts into a mutual fund. The periodicity of SIP offers a good variety and investors can choose weekly, monthly, quarterly, or half-yearly basis to make the investments. An investor can also decide the amount of investment in a SIP, which should be above the minimum investable amount set by the fund house.
Types of SIP
Here are some of the types of SIP:
Regular SIP which has fixed investment amounts
Trigger SIP which works on automated investment decisions
Debt SIP which focussed on debt funds
Flexible SIP which has variable investment feature
Step-up SIP which has feature of increasing investment amount
Multi SIP which has diverse portfolio
Equity SIP which invests in equities
What is ELSS?
An Equity-Linked Savings Scheme (ELSS) is a type of mutual fund in which the majority stocks are equities. This scheme has a potential to provide higher returns and also doubles as a popular tax-saving investment, with a lock-in period of 3 years which is one of the shortest tax-saving options. The ELSS, however, is subject to market risk and the value of investments can fluctuate based on the performance of equity markets.
Types of ELSS
The ELSS is generally divided into two types
The Growth Fund: It works by reinvesting the returns into the fund and letting it grow on the compound basis.
The Dividend Fund: It works by periodically providing returns to the investors while the investment amount remains invested for a fixed period.
What is Index Fund?
An index fund is a mutual fund which is based on a specific market index, for example Nifty 50 or Nifty Bank. The portfolio of this fund is constructed in a way that it matches the constituents of the index it follows, which makes its performance easy to track and mirroring the performance of the index.
Types of Index Funds
The index fund is divided into following categories:
Broad Market Index Funds
Sector-Specific Index Funds
International Index Funds
Bond Index Funds
Commodity Index Funds
Disclaimer: The information provided is for educational purposes only. Please seek expert advice before making investment decisions.
Investment Options for Beginners: Real Estate as an Investment
Real Estate Investment Trust or REIT is a company that develops, owns or finances revenue-generating real estate. It pools in funds from multiple individuals to invest in income-generating real estate. In concept, it is similar to a mutual fund and allows investors to invest and earn from real estate.
The rules governing the REITs mandate that 90 percent of the income generated is paid to investors as dividend and 10 percent retained by the company. The REITs usually invest in commercial real estate, lease it out and distribute the income among investors.
Types of REITs
Equity REIT: It is the most common type of REIT which deals with operating and managing properties that generate income, such as commercial buildings.
Mortgage REIT: It lends money to property owners or invests in mortgage-backed securities with earnings generated from the interest provided on the loans.
Hybrid REIT: It combines the features of equity REIT and mortgage REITs, letting investors earn from rental income as well as interest.
How Does a Company Qualify as a REIT?
A company must meet these conditions to qualify as a REIT. It must be set up as either a corporation or a trust, its shares must be freely transferable, it should be managed by a board of directors or trustees and have at least 100 shareholders. No more than 50% of its shares should be owned by five or fewer individuals in a taxable year and at least 90% of its taxable income must be distributed to shareholders as dividends.
It should also have at least 75% of its total income come from rents or mortgage interest and no more than 20% of its assets can be in stocks of taxable REIT subsidiaries. At least 75% of its investment assets must involve real estate and a minimum of 95% of its total income should come from investments.
Advantages of REITs
Consistent Dividend Income and Growth Potential
Diversification Opportunities
Transparency
Easy to Buy and Sell
Steady and Inflation-Resistant Returns
Disadvantages of REITs
No Tax Benefits
Market Risks
Disclaimer: The information provided is for educational purposes only. Please seek expert advice before making investment decisions.
Investment Options for Beginners: Gold, Silver, and Other Alternative Investments
Along with fixed deposits, stocks, mutual funds, and gold, alternative investments are growing. Private equity, hedge funds, commodities, real estate, and others are included. Retail investors can now access this growing segment, which appeals to HNIs and family offices.
Higher returns: Alternative investments often return 11-13%, much higher than fixed-income products.
Diversification: These assets operate independently of stock and bond markets, strengthening portfolios.
Growing Popularity: Alternative investments had $13.7 trillion in assets in 2021 and $23.3 trillion by 2027.
Top 5 Alternative Investment Options in India
1. Sovereign Gold Bonds (SGBs)
SGBs let you invest in gold without ownership. They offer safety, tax efficiency, and capital appreciation with government backing.
Rewards: Safe investment, regular interest, and no storage worries.
Lock-in period and liquidity issues.
Interest: 2.5% per year, plus gold-linked appreciation.
2. Real Estate Investment Trusts (REITs)
REITs offer income-generating real estate without ownership.
Regular dividends, liquidity, diversification, and professional management.
Market fluctuations and real estate downturns are risks.
Returns: 8–12% annually historically.
3. Asset Leasing
For ongoing income, investors lease equipment or property in asset leasing.
Capital preservation, tax advantages, flexible terms.
Credit defaults, operational issues.
Can generate 20% pre-tax IRRs.
4. Peer-to-Peer (P2P) Lending
Online platforms connect investors and borrowers in P2P lending, bypassing banks.
Interest rates are flexible and returns are high.
Low liquidity and credit risk.
Average annual return: 12-14%.
5. Invoice Discounting
Purchase discounted vendor receivables for this short-term option.
Fast turnover, liquidity, and diversification.
Potential issues: Payment delays and lawsuits.
Pre-tax annual returns up to 15%.
Key Considerations Before Investing
Alternative investments have liquidity issues, regulatory gaps, and limited historical data, but they offer higher returns and diversification. Experts advise investing no more than 10% of your fixed-income portfolio in these.
Explore these innovative options to create wealth and manage risk. Successful investing requires research and balance.
Disclaimer: The information provided is for educational purposes only. Please seek expert advice before making investment decisions.