Equity Investing

Let us examine the investments on shares and equity. In the current year, (2016) when the share market is on a downtrend, an essay on shares may not be right, many may wonder. But that’s a wrong perception. Hence, this article! Primary lesson is, investment in equity should be done when downtrend is witnessed too.

How does an individual start an investment in shares? This is how it goes. A neighbor or office colleague, say ‘Ram’ for example, would have purchased shares at Rs.50 each and earned some profit by selling them at the price of Rs. 80. With some jealousy to reap more benefits than him,  we buy the same shares at Rs 85 each and after losing patience after a while, we sell at loss for Rs.60 each. Because of such experiences when we hear about share trading I’m sure most of them don’t have the positive mind set to earn profit, but the negative mind set to run away dominates as they ended up with loss. If we try to understand why they incurred loss, we can avoid that problematic way and travel in some other route to make profit.
Equity related investments will yield more possibilities for growing more profit than immovable property assets. But its not an easy task, careful attention is needed. Equity and equity related investment is more risky. There is no difference of opinion. We often use a maxim in share trading. “Risk is more, Return is more”. The upward and downward trends in share market are like lovers quarrels and they compromises with pleasure. We cannot determine correctly when they will come or go. This table-1 may give us the idea.
Table / Image 1

Sensex is the index of Bombay Stock Exchange. If this rises Bombay share market is in upward trend, if it falls the market is in downward trend. Many researches on reducing risk in shares indicate that possibilities for profit are prevalent in long term investment in shares. How many days or how many years constitute long term? Here the outlooks differ. The researches point out that loss may result in the end of one year. If it is 3 or 5 years the loss comes down and sure profit is available in 15 years. This may be seen in picture A. So Time in the Market is important than Timing the Market.

GROWTH INVESTING 
 Selecting the proper shares and purchasing them is an art. There are two kinds in it. The first is “Growth Investing”. Investing in the shares with upward trend for short term in companies that are growing in a fast pace is called ‘growth investing’. As we have seen earlier, remember that short term means more risk

VALUE INVESTING 
The other pattern is “Value Investing”. Value Investing means a good bargain for your portfolio. As the saying goes, “Patient people will inherit the earth”. The financial status of a company should be analyzed well. Purchasing the shares of strong concerns at a discounted price also comes under this category. The risk in this is less and we should wait for getting gains.

The successful share traders who reached the top level in the world of share marketing mostly selected the path of value investing.
1. Care should be taken when purchasing the low  priced shares. All low priced shares may not be of good companies. The shares of financially sound companies only should be purchased at a discounted price.
2. The current price of the share and the present status of the company need not be seen as the proper indicators. We should estimate the future value of the company and if it is positive such shares should be bought.
3. Generally we never take into account the capacity of the promoters or management. It is very important. The capacity of the Board of Management may be known from the Financial Reports. Next indicator is the way they treat the share holders. Purchase only the shares of companies managed by capable management.
4. When the index of the stock exchange goes down, don’t worry. That is the correct period to purchase shares.
5. As already seen, purchasing shares on long term basis does not mean that forgetting the shares after keeping them in demit account. The status of the shares should be examined often and if the management of the company is capable, don’t sell the shares in the downtrend. Keep them for long and obtain hefty profits later.
6. On the long term basis, shares of first class companies yield more profit than gold.
7. The Commodity Trade fluctuates and goes up for a few years and then lowers for a few years. Presently gold and raw oil are in the downward trend.
8. Finally, we don’t purchase just shares. We become investing partners in the trade of the company. Many don’t understand this philosophy. We take purchase and sale of shares as a gambling. This is not good. This will not be fruitful. It is important to note in which industry or trade we become an investor.

The Value Investing and Growth Investing is one type of classification. Another type is “Market Capitalization”. The methods are Large cap, Mid cap and Small cap. To understand this we must be aware of Market Capitalization. Market Capitalization is the product obtained by multiplying the total number of the company’s shares with the Market price of its share.

Market capitalization = Number of equity shares x Market price of the share.

If the shares of a company are more and the market price of its level is high the market capitalization will be large. The company will be an important one. This is called large cap. (Reliance Industries, Tata Steel, ONGC).  If the numbers of shares of a company are small the Market Capitalization will be less. This company will be a small concern. (INOX) This is called small cap. The companies and shares in between the two levels are called Mid Cap. (BEML) New entrants to the share market may purchase Large cap shares. People who prefer to take more risk and try for more gain may purchase Small cap and Mid cap at the correct point of time.

BLUE CHIPS 
The shares of companies with strong financial base, widely recognized by many and large level companies are called Blue Chips. The special features of them are
1. Better Management.
2. Research oriented Business Practices.
3. Good Background.

Equity related investments in MUTUAL FUNDS 
Many times it has been emphasized that investing in share related Mutual Funds is more beneficial than purchasing shares directly. Once again I repeat that investment in Mutual Funds is better than purchasing shares directly.
The reasons are:-
1. Expert managers of shares, with the backing of research teams will select the correct shares for investment.
2. With long term outlook, Blue Chip Funds invest in companies with potential of long term growth.
3. Instead of focusing on individual company shares, they invest in diversified equity portfolio.

The Table 2 indicates the profits yielded by equity related Mutual Funds after ten years. Many surveys indicate that most individual share traders enter the share market when it is in Bull Trend – Upward moving-and become afraid when share market faces Bear trend – Lower movement and come out in fear with loss. Instead of that method, purchasing shares individually may be avoided and investment in Mutual Funds may be followed to reap the goings of share market.
Table 2

Multi cap fund returns as on Diwali day 2016	Launch	Since Launch Return %
Birla Sun Life Equity Fund	Aug-98	25.18
ICICI Prudential Dynamic Fund	Oct-02	24.21
ICICI Prudential Value Discovery Fund	Aug-04	23.03
Birla Sun Life Dividend Yield Plus Fund	Feb-03	21.9
DSP BlackRock Equity Fund	Apr-97	20.84
Kotak Opportunities Regular Plan	Sep-04	20.38

Also you can get the latest return details of this Multi cap equity funds return details from value research by clicking here

We have understood some of the successful techniques of share trade. Apart from understanding these features we can invest in equity related Mutual Funds.