Can Only Rich People Invest in Equity Mutual Fund?

There is a sense that equity investment is only for wealthy people. The assumption may be based on the fact that equities are a high-risk avenue and the rich are better positioned to withstand the ravages of market volatility. In reality, anyone can dabble in the asset class. The key to success is using surplus cash, a calculated approach, and the right investment strategies. Listed below are some pointers to enjoy an enriching equity investment experience.

Your time horizon plays a pivotal role in the investment strategy. Remember, the equity market is not about riding the bull and making a quick stash but growing wealth over the years. Yes, there is a need to exercise patience and focus on the long term. The best thing is to start by following a more passive-style approach before you include some active-style investments as you gain experience and knowledge.Investing in equity-based mutual funds through SIPs or small amounts of lump-sum will help you gain entry into the equity markets without exposing you directly to the daily volatilities. Moreover, the long-term perspective will ease the risk element and boost your chances of earning positive returns.

Diversification is crucial when building an equity portfolio. The logic is to spread your money across a wide range of financial instruments to mitigate risk. A loss due to a sudden decline in the value of one investment is offset by another's performance, ensuring that the entire portfolio doesn't get clobbered. A good mix of about 20 assets allows you to reap benefits from a bullish market and cut the losses during downturns.However, make sure your portfolio is appropriately diversified across large-cap, mid-cap and small-cap stocks. While your fund allocation to large-cap stocks will give you the much-needed protection, keep aside a bit of your pool to dabble in the small-cap markets that carry a high-return potential but also come with risk.

Avoid investing based on hot tips, social media buzz, and hearsay. Instead, do your due diligence. That means undertaking research, analysing reports, surfing investment sites, and following the opinions of illustrious investors, etc. Also, factor in valuation measures like P/E ratio, EV/Ebitda, return on equity, price-to-book value, operating profit margin, interest coverage ratio, and more. Besides enhancing knowledge, all this will help in selecting quality stock with strong financials and attractive upside potential. And if all this seems a bit too much for you to understand, pick up a few equity mutual funds that have a good track record and start investing in them.

The lure of big bucks can sometimes tempt newbies to borrow heavily when cash is strapped. Using leveraged capital for investment is a big no-no. The stock market is unpredictable, and a sudden slump can result in massive losses, mental stress, and huge debts. If facing financial constraints, start an equity mutual fund via a monthly systematic investment plan (SIP) with Rs 500. The small amount split proportionately in the fund will help you thrive.

An early start can give you a definitive edge. The earlier you enter the investment arena, the brighter are your chances of earning substantial returns. The reasoning is simple. A good head start allows your money to remain invested longer and grow further, thanks to the power of compounding.If you want to invest in equity, it's important to choose good quality funds or stocks, embrace the inevitable ups/downs linked to market volatility, and think long term. Not to mention, exercise discipline, patience, and diligence. Adherence to these simple guidelines will help minimise risk and maximise returns on your investments.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.